Shall Bifurcated Tack Reverse J.D. Edwards' Bad Spell?
On September 4, J.D. Edwards & Company (NASDAQ: JDEC), a provider
of collaborative enterprise applications, and Vitria Technology
(NASDAQ: VITR), a leading enterprise applications integration (EAI) provider,
announced that Vitria has been named a product alliances partner with
the goal of integrating J.D. Edwards' supply chain solutions with other
enterprise applications using Vitria's BusinessWare Integration server.
For example, an enterprise can improve its manufacturing process by using
BusinessWare to automatically communicate new orders from a J.D.
Edwards supply chain and inventory control system to a third-party manufacturing
execution system (MES). The agreement is in effect immediately. Adapters
enabling J.D. Edwards' software are available from Vitria. J.D. Edwards
and Vitria have reportedly previously collaborated in providing e-business
infrastructure to a variety of clients.
move that backs up the company's strategy of pursuing partnerships comes
only a few weeks after J.D. Edwards announced plans to acquire YOUcentric,
a provider of Java-based customer relationship management (CRM) software,
after a lackluster partnership with Siebel Systems (for
more information, see J.D.
Edwards Fires Siebel, Hires YOU). The company believes the acquisition
will position it to capture demand in the high-growth CRM applications
market, and thereby improve its sagging top line.
August 22, J.D. Edwards reported financial results for the third quarter
ended July 31, 2001. Total revenue for Q3 2001 was $204.2 million, a 22%
decline compared to $261.1 million in Q3 2000. While service revenue rose
7% to $154.2M, from $144.4M a year ago, the license revenue plummeted
sharply (57%) to $50M, from $116.7M a year earlier (See Figure 1). The
net loss from normalized operations was $3.2 million, compared to a $2.3
million profit a year ago. The loss from normalized operations for the
third quarter excludes certain items such as acquisition-related charges,
restructuring charges and a one- time valuation allowance for deferred
tax assets. Without these, the net loss for Q3 2001 would have been $185.9
million, compared to a year-earlier loss of $22.6 million. The valuation
allowance, required under current accounting rules, had a significant
impact on the loss, but had no cash impact. The total tax adjustments
from actual results to normalized results were $137.5 million.
Edwards is making great strides in our corporate revitalization, resulting
in a lower-than-expected loss for the quarter," said J.D. Edwards CEO,
Chairman and President C. Edward McVaney. "We still see softness in our
core manufacturing and distribution sector, which reflects an overall
market downturn, but I'm pleased with our improving services business
and excited about our planned acquisition of customer relationship management
vendor YOUcentric. I feel we are in a strong position to capture growth
in the collaborative applications market."
Edwards has been at the crossroads for some time. Contrary to its main
competitors that have by and large been bullish recently, J.D. Edwards'
revenue slump has not been a pretty scene (See Figure 1). To attribute
that to the current economic downturn, and to poor sales & marketing execution,
would only be a fraction of the truth. The last two years have been marked
with a frequent business model change, soul searching, staff departures
and the shift of the company's focus. Using cost cutting, frequently recurring
restructuring, and the 'magic' of financial accounting (e.g., tax adjustments)
as means to embellish the income statement, can only help so much, and
will likely be perceived by the market as desperate moves. The company,
therefore, faces the challenge of overcoming the perception of internal
disruption and the difficulty of regaining confidence.
its attempt to shed the image of merely an ERP vendor, J.D. Edwards has
initially focused on e-collaboration and extended-ERP applications, with
much of them coming from third parties. The company has also differentiated
itself from competitors by embedding Enterprise Application Integration
(EAI) into its OneWorld Xe product through its eXtended Process
Integration (XPI) integration layer. XPI is an eXtensible Markup Language
(XML)-based interoperability engine and architecture that handles data,
process, and workflow integration between enterprises. XPI manages the
'publish-and-subscribe' process used in sending and receiving transactions,
and includes a message broker to format messages using multiple formats.
The idea - to spare customers from investing in third-party EAI products
to link disparate best-of-breed applications together - is attractive,
but mostly to more agile and risk-taking companies, whose number has been
it is a more sophisticated approach than traditional EAI, given that most
other vendors only enable users to integrate third-party packages by providing
them with application programming interfaces (APIs) that then require
further coding, it is nonetheless complex and may likely deter smaller
enterprises to venture into it particularly during the current slow economical
times. Since the increased focus on the mid-market makes sense, J.D. Edwards
will have to make every effort to simplify not to overwhelm the prospects
with complex, obscure terminology and/or technology (e.g., Xe, and XPI).
while J.D. Edwards' move into the EAI and the product openness arenas
has been vindicated by Oracle's recently announced interconnectivity
strategy (see Oracle
Makes A U-Turn At The "All Things To All People" Exit), the company
must also continue to widen the breadth of its natively provided applications.
The crucial driver of its license revenue revival, will be J.D. Edwards'
client base's adoption of its strong native extended-ERP functionality
such as supply chain planning, collaboration and execution, and warehouse
management, which have recently often been the order winners.
small enterprise simply wants to manufacture and deliver a product in
a most efficient way, utilizing minimal necessary resources. Therefore,
smaller companies consider planning and execution as one process. J.D.
Edwards has resolved many pieces of the puzzle by delivering the real-time
integration of Advanced Planning and Scheduling (APS) and OneWorld with
event-driven product architecture.
as we are positive regarding the YOUcentric acquisition (see J.D.
Edwards Fires Siebel, Hires YOU), as the move puts some substance
in J.D. Edwards' long confused and wandering CRM strategy, it will take
some time for the acquisition to be consummated and to bear fruit despite
the products compatible architectures, data mapping technology and therefore
potentially expedient integration. J.D. Edwards' collaborative commerce
product set brings together ERP, APS, and Supplier Relationship Management
(SRM) with traditional CRM functions, which should enable a customer-oriented,
collaborative B2B solution for optimizing a company's planning, marketing,
sales, order fulfillment, delivery, and service operations. However, the
fact that the company has long been dormant pursuing technology strategies
beyond the core ERP, will have far reaching consequences in the company's
ability to gain traction in its effort to reverse a downward slide.
Edwards, however, still lacks much of desired functionality for solid
e-procurement, Product Lifecycle Management (PLM), and private trade exchanges
(PTX) products' offering and strategy, which are potentially attractive
modules even during the down economy. Further, the assimilation of the
YOUcentric product bundled with likely limited investments in R&D and
sales & marketing due to recent poor financial performance, may take a
toll in narrowing J.D. Edwards' delivery of vertical solutions.
Edwards has enhanced its solutions and expertise in the consumer products
goods, automotive, pharmaceuticals, and manufacturing project management
markets to deliver vertical industry functionality, and it had plans to
release a series of collaborative solutions, focusing on specific industries
such as high-tech/electronics. The challenge will be to maintain the roster
of available service & support staff that will be proficient in a plethora
of offered applications and in XPI integration. Therefore, J. D. Edwards,
more than its direct competitors, will have to prove that it has the means
to support its customers in the future.
a more positive note, J.D. Edwards can let go a sigh of relief as the
Xe release extends the life of its older World software that still has
a large user base. This should significantly ease both new implementations
and/or migrations from a World software release, which have been
a daunting experience for many users, especially for early adopters in
1999. Both products now can continue their own development cycles separately
but interdependently as products can communicate via Xe's XPI interoperability
technology. Trying to resolve this predicament has plagued J.D. Edwards'
ability to move more aggressively into developing more needed functionality.
opting now for a "best of both worlds strategy," J.D. Edwards might finally
have a formula of getting out of the doldrums it has been in for some
time. While maintaining product flexibility, it can now provide its own
'must have' applications (e.g. SCM and CRM), and offer, through partnerships,
the secondarily important bolt-on's (e.g., transportation procurement
via Logistics.com or Contract Administration and Reporting
System (CARS/IS) via I-many.
a summary, the new initiatives are steps in the right direction, but the
market will have a close eye on new license sales. Not many will feel
comfortable striking a long-term partnership with a vendor that has a
broadened product offering but declining sales growth. The time window
may be closing for J.D. Edwards to turn around its business given the
competition flying from all directions (e.g, Lawson Software,
IFS, Baan, and Intentia, in addition to its bigger,
currently unstoppable Tier 1 competition - SAP, Oracle, and more
Potential and current J.D. Edwards' users should not overly dwell on its
viability and the future. The company remains a major applications vendor
and will continue to deliver exciting products. However, some risk should
be taken into account during the selection process until the company returns
to consistently profitable quarters and growth of license revenue. Question
the company's ability to deliver promised vertical enhancements both in
short and medium-to-long term. Existing users of the IBM iSeries-based
World software should be aware that the YOUcentric CRM product will be
interfaced to their product through the XPI technology, and should inquire
about a more detailed product integration strategy
J.D. Edwards' customers should certainly consider the new offering bearing
in mind the immaturity of recently released products, and the fact that
the company's strategy is still a moving target.
would be hard pressed to justify not including J.D. Edwards on at least
an initial long list of vendors in a global manufacturing and distribution
enterprise applications selection. Evaluate J.D. Edwards if you are a
mid-market or a low-end Tier 1 enterprise (with $100M-$2B in revenue)
and if your requirements fall within the scope of the traditional ERP
and SCM offering, with manufacturing, logistics and financial modules
as main pillars of an enterprise application. One should also bear in
mind the company's expertise within some industries like automotive, consumer
packaged goods (CPG), electronics, manufacturing & distribution. Nonetheless,
if CRM or e-Procurement are of a critical importance and immediate need,
question the company's currently available offering and consider competitors'
value propositions too.
Edwards' value proposition is for rapid change environments that value
system flexibility and openness and/or have data scattered over several
different systems/platforms, and the need to integrate those into a single
comprehensive recommendations for both current and potential J.D. Edwards'
users can be found in J.D.
Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower?
Part 2: Evaluating J.D. Edwards.