MAPICS Back On Track, But Not Without Restructuring Pains

MAPICS Back On Track, But Not Without Restructuring Pains
P.J. Jakovljevic - September 11, 2000

Event Summary

As announced in a press release from August 23, MAPICS, Inc., one of the leading mid-market ERP vendors, announced that it is taking steps to reduce costs through a restructuring plan that includes directing a greater proportion of its resources on the worldwide growth opportunities for its newest extended enterprise solutions for manufacturers. As part of this restructuring, the company has laid off approximately 10% of the workforce dedicated to ERP backbone solutions. The Company said that as a result of the strategic rebalancing, it expects to record a pre-tax restructuring charge of up to $2.0 million, most of which should be recognized in the fourth fiscal quarter which ends September 30, 2000.

"Our results in fiscal 2001 should benefit from these actions that include direct cost reductions as well as other operating changes that are intended to improve margins," remarked Dick Cook, president and chief executive officer. "We expect to gain increased efficiency as well as to capitalize more effectively on the exciting potential we have with our new solutions such as Thru-Put. We have identified that the most significant growth opportunities for MAPICS lie in the supply chain management and e-business arenas. We are instituting an intensified product development and marketing effort for these offerings with an active focus on additional partnering arrangements that we can form to help manufacturers move rapidly into an e-business operating mode. We also are firmly resolved to continue evolving and enhancing our ERP backbone solutions of XA and Point.Man, which consistently provide a very positive return on investment for our customers. One of the fundamental strengths of MAPICS remains our closeness to the marketplace through superb customer support and a very effective Affiliate network. We are in a dynamic period and are committed to positioning our assets where we can realize the maximum return for our customers and shareholders. We are confident that by rebalancing our personnel, we can capitalize on the leadership that MAPICS has established and augment our solutions with additional innovative extended enterprise applications. This change focuses on the current and future needs of our customers as they increasingly move into a collaborative world."

On August 15, MAPICS announced the MAPICS Certified Service Providers (MCSP) program. Under this new certification program, external service organizations will expand MAPICS' service offerings by providing manufacturers high quality, consistent and in-depth implementations. MAPICS established the MCSP program to enhance the top-notch customer service provided to the company's increasing number of multi-national customers and to increase customers' ROI through high capacity use of MAPICS solutions.

"With all the changes in technology today, and the increasing number of worldwide, multi-site implementations, we want our customers to know that the superior customer service we provide them will never change," said John Koontz, vice president of MAPICS North American operations. "MAPICS has consistently been rated high in customer service rankings by leading industry analysts, and the MCSP program was developed to ensure that customers continue to receive the highest quality, in-depth implementation and support across their enterprise."

Earlier, on July 27, MAPICS reported results for the third quarter of its fiscal 2000 that included earnings of $1.3 million, or $0.07 per share (diluted), before goodwill amortization. Including goodwill amortization, the Company reported a net profit of $0.3 million, or $0.02 per share. Total revenue for the third fiscal quarter was $36.5 million compared with $32.1 million a year ago. In the year-earlier period, net income was $2.4 million, or $0.12 per share (See Figure 1).

Figure 1.

Steve Haley, chief operating officer, said, "We are entering the fourth fiscal quarter with solid marketing momentum. At the same time, we must acknowledge that the dynamics driving sales in our industry have not been easy to evaluate thus far in calendar 2000. Manufacturers clearly face conflicting pressures on their capital budgets, influenced by the increasingly evident potential of e-business but tempered by economic concerns. MAPICS has the advantage of offering a broad product line that meets the needs of manufacturers seeking our supply chain and e-business components as either part of a total enterprise solution or an extension of their existing ERP foundations. This flexibility and the size of our installed base are helping us maintain our revenue and sustain consistent operating profitability during a very challenging period of adjustment for our industry. Our strategic goal remains achieving long-term growth, and we are intent on focusing our investments to gain the maximum return. Another component of our plan involves expanding our marketing channel, which has proven the benefit of both direct and indirect sales. We see significant potential for using application hosting strategies as well as conventional delivery methods and are excited that a number of additional companies are approaching MAPICS to represent our solutions."

Market Impact

While nobody, including the company's management, can deny the difficulties of current times, MAPICS' management should nevertheless be pleased. The company has returned to profitability in an enviably short period of time, while disposing of most of the acquisition charges and continuing to invest heavily in R&D. This is in a sharp contrast with a position of many Tier 2 and Tier 3 ERP vendors that are currently in for a rough time as they continue to expand their products, refine their marketing message and defend their turf from each other and from ever more intruding bigger vendors, while coping with much scarcer resources.

While there may be reason for concern due to a flat license revenue and the staff turnover rate departing from its long record of low, there is no real cause for serious users' concern. We concur with MAPICS' justification of its need for restructuring and also believe the company's decision to deal with it was another necessary move. Staff layoffs are not uncommon in the industry, and Great Plains remains the only honorable example of an acquisition (of Solomon Software) consummated with almost zero attrition.

We favorably regard the company's recent e-business initiatives, which are in tune with the market trends and its manufacturing customers' requirements. Moreover, we condone MAPICS downplaying its role as yet another ERP-turned-e-commerce vendor in favor of portraying itself as a vendor that provides a comprehensive solution of ERP transactional systems, extended ERP and e-business applications. We also agree with MAPICS' plans of enhancing its core ERP products and continued emphasis on integrating e-commerce components with its back-office systems. The most recent product of that effort is the new release of Point.Man Extended Enterprise Edition, which offers appliance-independent links via the Internet directly to the ERP back office.

The company also introduced MAGIK!, an Internet-enabled product development collaboration and product lifecycle (PLC) tool. Also, MAPICS continues to make the right moves in order to maintain (and possibly improve) its highly acclaimed customer satisfaction record by nurturing the close relationship with its affiliate channel. The broad scope and flexibility of its product offering as well as the size of its existing customer base should provide MAPICS with recurring revenue and sustained profitability during the forthcoming rocky transition period.

Nevertheless, the company faces some notable challenges. The management of dual flagship product lines remains possibly the biggest challenge for MAPICS and its affiliate channel. Another challenge facing MAPICS is figuring out how to facilitate adoption of the e-business trend by the manufacturing industry. Manufacturers have traditionally not been early technology adopters, but they indisputably can benefit from e-business functionality such as collaborative planning. While MAPICS seems to have most of the required components, it still has to articulate a solid e-business value proposition for wary manufacturers.

User Recommendations

MAPICS/PivotPoint should be included on the selection list for mid-market companies (with $50M-$500M in revenue), where discrete, batch manufacturing, engineering and logistics modules are the main pillars of an enterprise application. Organizations seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may benefit from evaluating MAPICS' ASP offering. Support, connectivity, ease of use, security, acceptance, and scalability are only a few regular considerations.

Owing to expected growing pains in merging disparate product lines within the current affiliate channel, potential clients should conduct a preliminary research on industry expertise and reference sites of a regional MAPICS affiliate service provider when the MAPICS/PivotPoint product is selected. They should also familiarize themselves with respective products' strengths/weaknesses within certain vertical industries.

Current MAPICS/Pivotpoint users may want to inquire about the company's plans regarding Internet marketplaces in their respective industries. Which specific market places does (or will) MAPICS connect with, what methodology does (or will) the company adopt, are some of the necessary inquiries in that regard. Furthermore, companies outside of above-mentioned industries may benefit from evaluating MAPICS non-core ERP product components on a stand-alone basis for their e-business needs and leverage that information against other vendors in the selection.

As for the new added functionality through partnerships, users are advised to ask for firm assurances on the availability and future upgrades timeframes, and more detailed scope of combined product functionality. In any case, make sure that MAPICS or its affiliate service provider offers a single contract and help desk for all disparate components of its product offerings. This should not be a problem given the company's past customer satisfaction record.

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