No More Mr. Nice Guy With J.D. Edwards
On May 24, J.D. Edwards & Company reported financial results for the second
quarter ended April 30, 2000. Total revenue for the second quarter of
fiscal 2000 was $231.0 million, compared to revenue of $231.6 million
in the second quarter of fiscal 1999 (See Figure 1). License fee revenue
grew 22% over the same period last year, to $81.7 million. Services revenue
was $149.3 million, compared to $164.4 million in the second quarter of
fiscal 1999. Net loss for the quarter, including acquisition-related charges,
was $2.3 million, or $0.02 per share, compared to net loss of $10.4 million,
or $0.10 per share in the second quarter of fiscal 1999. At the end of
the second quarter of fiscal 2000, the Company had over $400 million of
cash and investments.
in the same week, J.D. Edwards announced a strategic restructuring aimed
at reducing costs and strengthening the company's position as a leading
provider of software solutions for collaborative commerce. Under the restructuring,
the Company plans to realize savings from areas such as consolidating
and reducing office space, improving the cost-effectiveness of training
customers and reducing the number of personnel. The Company believes that
this restructuring will free up the necessary resources to continue building
its leadership position in the collaborative commerce market. Overall,
payroll costs are expected to be reduced by 15%.
the last earnings release, J.D. Edwards has generated significant license
revenue growth and it claims to have demonstrated success in the supply
chain and customer relationship markets.
While the significant increase in license revenue seems very plausible
and represents an improvement in the company's traditionally inefficient
sales & marketing effort, the rest of JD Edwards' situation remains lackluster.
It has long maintained a significantly higher number of general & administrative
employees (15 % of the total number of employees compared to the industry
benchmark of 11%). The wariness to tackle this sensitive issue was regarded
as one of the major flaws of the former JD Edwards' CEO in 1999.
these layoffs may aggravate concerns and market perception that this may
be an onset of the Baan and SSA syndromes, continuation of JDE's bloated
expense structure was no option. Nonetheless, the company will have to
conduct a thorough soul searching in order to answer its failure to sustain
the business in important German and Japanese markets.
greater reason for concern may be the company's continuation of maintaining
its portfolio through a number of alliances, which was also a part of
the controversial strategy of its ousted CEO. It appears that J.D. Edwards
has no other choice since its income continues to be so constrained. The
market is demanding more and more from vendors and broadening a product
offering through R&D or acquisition is very expensive. We believe J.D.
Edwards, having spent a hefty amount of its R&D expenses on resolving
inconsistent functional quality, missed functionality, poor performance,
and Web-enablement of its OneWorld flagship product, must be reluctant
to undertake any internal development or acquisition of CRM and e-commerce
this is not necessarily an insurmountable obstacle, given the fact that
even SAP had to abandon its 'one-stop-shop' product strategy. To allay
any negative publicity, the company must emanate a convincing e-commerce
message to assure the market and its customers that it will continue to
be viable. The 'freedom to choose' message may strike chords with some
more aggressive CIOs. The increase in new licenses seems to speak in that
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, where manufacturing, logistics and
financial modules are main pillars of an enterprise application, would
do well to consider J.D. Edwards.
company's proven fair treatment of customers as well as its expertise
within some industries like automotive, consumer packaged goods, electronics,
manufacturing & distribution makes it a good option. However, any organization
evaluating J.D. Edwards should only consider 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.
technological integration is seldom guaranteed by joint marketing arrangements,
and only comes after the arrangement yields considerable implementation
experience. The company's readiness to provide a number of reference sites
where the installation of its partnership-enhanced product has gone without
major glitches would also alleviate existing anxieties within the user
if a complementary product beyond core ERP (e.g., CRM, e-commerce, etc.)
is of a critical importance, users should think carefully about the possible
implications and may benefit from considering J.D. Edwards competitors'
value propositions also, on a component basis.