Symix Starts New Year Under New Name, But Old Issues Remain

Symix Starts New Year Under New Name, But Old Issues Remain
P.J. Jakovljevic - December 14, 2000

Event Summary

On November 8, Symix Systems, Inc. (NASDAQ: SYMX) a leading mid-market provider of business systems for manufacturers and distributors, announced that a proposal to change its name to Frontstep, Inc. won overwhelming support from shareholders at the company's annual meeting. The company will, therefore, immediately begin operating as Frontstep, and its common stock will be traded under the symbol "FSTP." The existing Symix sales and services organization will continue to serve as the company's direct channel to manufacturers and will operate as a subsidiary of Frontstep.

"We have an exciting opportunity to advance the competitive position of our customers by providing practical and pragmatic solutions that allow them to buy, sell and collaborate over the Internet," said Stephen A. Sasser, president and chief executive officer of Frontstep. "In today's connected world, companies must have a strong outside game to be able to operate at Internet speed with their customers, suppliers, distributors and trading partners. Our comprehensive suite of e-business solutions, combined with our experience in the mid-market, uniquely qualifies Frontstep to turn the promise of the Internet into a reality for mid-sized companies. We have reshaped the company around the e-business imperative, as reflected by the products, services, partnerships and customer successes we've built over the last year."

However, the company's financial performance continues to deteriorate. On October 25, Symix announced financial results for the first fiscal quarter ended September 30, 2000. The company reported a net loss of $3.5 million for the quarter, compared to net income of $895,000 for the same period last year. Total revenue for the quarter was $28.0 million, compared to $32.1 million for last year's comparable quarter (See Figure 1). Results for the quarter include a $2.2 million, pre-tax, non-recurring charge.

Figure 1.

"As expected, we incurred a loss in the first quarter as ERP revenues remained sluggish and e-business revenues just started to ramp up," said Mr. Sasser. "From an operational standpoint, we continue to make steady progress in transforming ourselves into an e-business leader. Our e-business initiatives are being enthusiastically received by industry analysts, the media, leading e-business partners, a growing number of e-customers, and early adopters in our large installed base. I am particularly pleased by the response from our existing customers, who understand our direction and are excited about the benefits for them."

In July 2000, Symix announced several structural changes to reallocate resources and intensify its focus on core e-business initiatives. These included divesting of the company's FieldPro subsidiary, discontinuing operation of the company's e-Mongoose subsidiary, consolidating product development and establishing three distinct channels. Non-recurring pre-tax costs incurred or accrued in the first fiscal quarter were $2.2 million. These are in addition to the $3.0 million, pre-tax, in costs reported in the previous fiscal quarter for this effort. The company does not anticipate additional costs related to these activities.

Market Impact

The last 12 months have indisputably marked the period of possibly the most dramatic business model change in the entire company's history. The name change reflects the company's shift of focus from being a leading ERP vendor dedicated to the industrial mid-market to fully leveraging the Internet in the applications it provides to manufacturers, distributors and trading exchanges - as well as the new channels, delivery methods and pricing options the company is using to accelerate adoption of its entire product portfolio. Through its other division, the brightwhite services group, Frontstep plans to provide the design and deployment services required by customers to plan, build, launch and advance an e-business strategy. Therefore, Symix' traditional reliance on its direct sales and undeveloped indirect channel, which has been a flaw in its otherwise successful ERP mid-market strategy in the past, should be significantly mitigated.

We believe the company has articulated an e-commerce vision that should have an appeal to its mid-market users. In a nutshell, the mission is to deliver tightly integrated traditional ERP systems (not confined to only Symix' ones) and new e-Business components. The company's focus on the mid-market in make-to-order (MTO) and assemble-to-order (ATO) discrete manufacturing has not been changed, however. While Frontstep has been promoting the concept of an integrated solution, including both ERP and e-Business components, the company is also pursuing stand-alone sales of its e-Business offerings, both to manufacturing companies using a different back-end system, and (to a lesser degree) to organizations outside of the manufacturing industry. The broad scope and flexibility of its product offering as well as the size of the existing Symix customer base should provide Frontstep with recurring revenue and possible profitability during the ongoing shaky transition period.

Frontstep/Symix had no choice but to extend its foothold in the coveted mid-market ERP market segment and to fill the gaps and/or diversify its product portfolio. We also endorse the company's plans of enhancing its core ERP product, particularly in terms of vertical focus, and continued emphasis on integrating eSyte e-Business components with other back-office systems. The openness and interconnectivity are one of the most important tenets of competitiveness within the enterprise applications market in the new Internet economy.

Nevertheless, the company faces some notable challenges. Symix' recent name change to Frontstep will require a strong marketing initiative to inform potential and existing clients about the company. Another challenge facing Frontstep is figuring out how to facilitate adoption of e-business by the manufacturing and distributing industry. Like many of its peers, the company has been experiencing unpredictability in winning new deals, which has been reflected in significantly declined license revenue and low traction of its e-business products. Manufacturers and distributors have traditionally not been early technology adopters, although they should benefit from e-business and front office functionality as well. While Frontstep seems to have most of the required components, it still has to articulate a solid e-business value proposition for wary prospects.

It has been a tough time for all of the mid-market ERP vendors, and Frontstep/Symix is not an exception despite its name and image change. Furthermore, it will have to expedite full integration of the newly released e-business applications with a slew of its traditional back-office products if it wishes to mine its large customer base.

User Recommendations

Potential and current Frontstep/Symix users can be assured about the company's viability and the leading position within its target market. The company has broadened its product lines and seems to have responded to recent market trends. More important will be how well it will manage the name change and brand recognition, how well it will target the right e-business issues for the manufacturing and distribution mid-market and demonstrate benefits to the prospect or customer, and how it can increase its currently low traction.

More comprehensive recommendations for both current and potential Frontstep/Symix users can be found in Symix Systems Front-Steps Into Greener e-Commerce Pastures.

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