JD Edwards Reports Strong License Revenue Growth in Q1 2000, but…

JD Edwards Reports Strong License Revenue Growth in Q1 2000, but
P.J. Jakovljevic - March 28th, 2000

Event Summary

J.D. Edwards & Company reported financial results for the first fiscal quarter ended January 31, 2000. Revenue for the first quarter of fiscal 2000 was $231.7 million, compared to revenue of $222.9 million in the first quarter of fiscal 1999 (See Figure 1).

Net income for the quarter, excluding amortization of acquired intangible assets was $3.6 million, or $0.03 per diluted share, compared with net income of $4.3 million, or $0.04 per diluted share, in the same period last year. Net loss for the quarter, including amortization of acquired intangible assets, was $152,000 or $0.00 per diluted share. License fee revenue grew 20% over the same period last year, to $83.3 million. Services revenue was $148.4 million, compared to $153.3 million in the first quarter of fiscal 1999.

JD Edwards has recently forged a number of alliances as the company looks to expand the availability of its OneWorld product suite. In a two-pronged attack, the company has secured an agreement with Andersen Consulting and extended its existing deal with IBM Global Services. It will concentrate on the consumer packaged goods market, and a co-development deal with Andersen will provide collaborative brand management and promotions applications.

The JD Edwards storefront for e-business will be powered using IBM's Websphere Commerce suite and will be available in the spring. Doug Massingill, chief executive of JD Edwards, said: "We have to give customers a solid, integrated platform that scales, and for us, that means reselling Websphere. We're going for the one-to-few rather than one-to-many sector with Andersen and IBM, providing customization services."

JD Edwards has also reviewed its reselling agreement with Siebel to include Siebel's entire suite of front office applications. Alongside these agreements, JD Edwards will focus on its demand planning, scheduling, and product configuration products that include applications from last year's Numetrix acquisition.

Mike Schmitt, senior vice president of product strategy at JD Edwards, said: "Mid-market enterprises need to respond to competition from customer-driven digital exchanges. These applications add value to their businesses." Schmitt conceded that JD Edwards' own development needs to move forward so that customers get access through a full HTML client, which will be available in June. This will allow ASPs to host on a one-to-many basis, which is not possible under client/server architectures.

Asked whether the company is comfortable with having many critical components outside its immediate control, Schmitt said: "We think the OneWorld architecture insulates us from incremental application change issues." "We have to show offerings in all these markets, but today it's hard to know where the demand will concentrate itself. It will be tough for the foot soldiers out there selling," added Schmitt .

Market Impact

While we believe that the worst was over in 1999, 2000 will be a challenging year for J.D. Edwards. The Company has entered 2000 with a great deal of painstaking integration efforts remaining, both with its recently acquired products and with products of its partners, such as Siebel, Ariba, and Synquest.

J.D. Edwards is repositioning itself as an enterprise vendor to convince medium sized manufacturing enterprises that it is worthwhile extending their activities into e-business. However, managing a large application portfolio, much of which involves partnering or extensive integration and customization, will be cumbersome despite a highly marketed flexible product architecture.

Ten alliances have been highlighted in announcements since September 1999. Of these, at least seven deal with functional areas that are included as standard not only by larger rivals like Oracle and SAP, but also by its smaller competitors like Great Plains, Symix Systems, and IFS AB. J.D. Edwards' heavy reliance on other vendor's software flies in the face of its aggressive positioning around flexibility. Customers may find this disconcerting.

J.D. Edwards also has to be careful how it manages its alliances with "big stars" like Siebel and Ariba. In most of its key relationships the partner seems to be more influential and currently has a stronger brand. J.D. Edwards could therefore find it a challenge keeping control of its own destiny. The strategy gives the company less control of its own business. Its income can become so constrained as to be insufficient for any further broadening of a product offering through R&D or acquisition.

User Recommendations

We generally recommend including J.D. Edwards in an enterprise application selection long list for mid-market and low end Tier 1 companies (with $100M-$2B in revenue). Organizations whose requirements fall within the scope of the standard ERP offering would do well to consider J.D. Edwards. However, any organization evaluating J.D. Edwards should only consider the existing functionality, and, in case of final selection, should negotiate the incorporation of new applications components now.

Future clients are also advised to request the Company's written commitment to promised functionality, length of implementation, and seamless future upgrades, particularly for recently announced partnered offerings. If a complementary product (e.g., CRM, e-Commerce, etc.) is of a critical importance, they should think carefully about the implications, and may benefit from considering its competitors' value propositions too.


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