Ross Systems Continues To Slip, But Pledges to Fight Tooth And Claw

Ross Systems Continues To Slip, But Pledges to Fight Tooth And Claw
P.J. Jakovljevic - December 22, 2000

Event Summary

On November 14, Ross Systems, Inc. (NASDAQ:ROSS), a provider of ERP and e-business solutions for mid-market process manufacturers, reported results for its first quarter ended September 30, 2000. Revenues in the quarter were $14.2 million, down 39% from $23.3 million in the same quarter of the prior year. Particularly bleak was a 60% license revenue decline, to $2.4 million from $6 million a year ago. The net loss for the quarter was $4.2 million, compared to a net profit of $0.3 million in the same quarter of the prior year (See Figure 1). The loss for the quarter included a charge of $0.8 million for non-recurring severance costs.

Figure 1.

Lower license revenues, which management attributes to a slowdown in new license contracts, also resulted in lower consulting revenues and a slight decline in maintenance revenues, despite continuing demand from existing customers for add on products. A somewhat encouraging fact is that operating expenses for the quarter were down 19% from the prior year.

"The results are obviously very disappointing." said Pat Tinley, Ross' President and CEO. "However, we are determined to take the necessary steps required to return this business to profitability."

As evidence of the company's determination for action, in mid September Ross Systems announced a major restructuring program aimed at significantly reducing the company's costs. The results of this program will be a reduction of expenses in excess of $12 million on an annualized basis (for more information, see Ross Systems Ends Year On a Sour Note and Braces Itself For Survivor's Game)

The company has made additional more decisive moves designed to return it to profitability.

  • As European operations have been the major contributing factor to operating losses over the past three years, the company has implemented a strategy to move to an indirect distribution model in France and other smaller European markets. Ross Systems believes that these new channels will minimize its European operational exposure while maintaining a productive sales presence.

  • Ross Systems will continue with a direct sales organization in North America. The company believes this type of selling model allows it to leverage the e-business opportunities in its installed base while selectively focusing on new business opportunities in its core markets. "Ross will focus its new business selling efforts where we have a differentiated offering that provides a measurable improvement to our prospects' business" said Peter Fausel, Ross' Senior Vice President, North American Sales and Marketing. "Focusing on these markets will provide a more efficient and profitable sales and consulting organization."

  • In September the company announced a partnership with Integris US to provide IT outsourcing and ASP software solutions called "Ross eSourcing". Ross eSourcing has been devised as a flexible outsourcing service in which customers select a solution tailored to their technology needs. This bold and possibly differentiating move will provide its customers a hosted, subscription based, alternative for their enterprise software solutions. There seems to have been a notable demand for this type of solution as evidenced in recent contracts with Chemetals Inc, LioChem, Elementis and Hussey Copper Ltd.

The company believes the reduced operational costs combined with future market momentum will provide for balanced growth and more consistent profitability going forward. Ross Systems believes that these actions, along with continued technology-based productivity improvements, will move the company to profitability.

Market Impact

'Doom, gloom, and (not yet) despondency' aptly describes Ross' ongoing state of affairs. While the company's steadily declining revenue trend inevitably continues (See Figure 1) the outstanding R&D work in progress seems to be winding down. The only remaining unresolved piece to place in the puzzle would be more new license sales, which seems to be a tall order. Accomplishing the much-needed transition from ERP to e-commerce has been an arduous effort. Over the last 18 months, Ross has been delivering enhancements to its traditional Renaissance ERP suite. Ross has re-architected it to be Web-based (and, therefore, renamed it iRenaissance) and has released the new e-business suite through its Resynt subsidiary. Part of the suite was developed in house, while the supply chain planning capabilities emerged from a partnership with Prescient Systems Inc. The e-procurement and marketplace functionality came from an alliance with Clarus Corporation.

While Ross offers strong functionality for the process manufacturing mid-market segment, with a sharp vertical focus and good multi-national capabilities, it has all but lost the visibility in the high-end of the market owing to its protracted poor financial performance (in contrast to the very good performance of its main competitor SCT Corporation) as well as to scalability caveats caused by its recent commitment to only Microsoft's technology. Ross also offers financial and HR products for the healthcare and public sector market segments, which have proven to be significantly less profitable than its process manufacturing product line, and have been further diluting the company's resources and focus.

Given its market niche Ross' move to better leverage its indirect channel is wise, and we recommend it consider utilizing that model in North America too. The company has also been timid in articulating its CRM and digital marketplace strategy. Its ASP strategy has been somewhat improved though, with the above-mentioned announcement.

While Ross has a new suite of e-business products, a large customer base, and a global organization with solid experience in the process manufacturing market, its future remains very uncertain. It may benefit, from recent anxiety and confusion in Wonderware's customer base owing to its parent Invensys' decision to merge the Wonderware (formerly Marcam) and Baan product lines (for more information, see Process ERP Market Loses PRISM and Protean). Failing to take advantage of the opportunity would almost give SCT Corporation free rein within the process manufacturing business software market.

User Recommendations

While Ross Systems' financial situation has significantly deteriorated during the last two years (down to mere $1 million cash and to below $10 million market value), the company should not be written off. It still has a strong functional fit for a number of process manufacturing industries. Users are advised to follow the company's new product introductions and keep a close eye on its future performance. Also important will be to watch how well it will maintain its direct sales and indirect channel, how well it will target the right e-business issues for mid-market process manufacturing enterprises and demonstrate the touted benefits to the prospect or customer in order to increase the new licenses growth.

More comprehensive recommendations for both current and potential Ross' users can be found in Ross Systems, Inc.: In Process of Renaissance.

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