Symix Systems’ Slips Into Red During Its E-Commerce Transition

Symix Systems' Slips Into Red During Its E-Commerce Transition
P.J. Jakovljevic - June 7, 2000

Event Summary

As reported in the press release on the company's Web site, on April 20, Symix Systems, Inc. announced financial results for the third quarter and nine months ended March 31, 2000. While total revenue for the quarter was comparable to that reported for the same period last year, the Company has realized an operating loss of $1.2 million for the quarter, or $0.16 per share, excluding a non-recurring charge of $638,000 resulting from the Company's acquisition of Profit Solutions, Inc. in February 2000 (See Figure 1). This operating loss is attributed to the Company's continuing investment in its e-business operations, and the delayed rebound of the traditional enterprise systems market following the Y2K-caused slowdown.

Figure 1

Significant strategic advancements made this quarter include the launch of Symix's Frontstep, Inc. e-business subsidiary; the acquisition of eCRM provider Profit Solutions, Inc.; a strategic partnership with Commerce One, Inc.; and the Company's on-time delivery of its eSyte e-business software suite. According to Symix these e-business initiatives contributed more than $2 million to third quarter revenue in business-to-business eCommerce software and services.

"The results from this quarter confirm that the enterprise systems market is fundamentally changing," said Stephen A. Sasser, Symix President and Chief Executive Officer. "We have been preparing for this market shift, but had anticipated a more immediate rebound of the demand for traditional enterprise systems following Y2K. Although our pipelines for traditional enterprise systems are increasing, the more immediate interest is in e-business. Our market's technology considerations and investments have turned to software and supporting services that will help these companies seize new Internet-driven opportunities, such as providing customer service and supplier collaboration over the Web."

"We are now delivering Web-enabled systems that enable our customers to buy, sell and collaborate over the Internet, and this quarter we have just seen the beginning in terms of market success," added Sasser. "In less than three months, we have sold e-business applications to over 30 companies, including standalone eCRM customers outside of our traditional manufacturing markets. We have already seen this growth trend continue as we enter the fiscal fourth quarter. Symix is positioned to make a profound impact on the market - we will continue to move quickly to capitalize on this opportunity."

Market Impact

While there may be a reason for concern due to declining license revenue and a tainted profitability track, there is no real cause for users' jitters. We concur with Symix' justification of its Q3 loss and also believe there are a few reasons for the company's recent flat revenues. The first reason is the ever-increasing competition in the Small-to-Medium Enterprises (SME) market within the discrete manufacturing segment of the ERP market, with the intrusion of Tier 1 ERP vendors into an already crowded space. Second, Symix Systems' initial benefits from on-time release of its fully integrated supply chain software (CSRP) have recently been counteracted by competitors' similar offerings. As an example, MAPICS has abandoned the OEM agreement with Symix in favor of the Pivotpoint product it recently acquired.

Nevertheless, Symix has recently taken advantage of its soaring market capitalization to extend both its foothold in the coveted small-to-medium (SME) ERP market segment and to fill the gaps and/or diversify its product portfolio. We also believe that these moves have been prudent and in tune with the current ERP market trends.

However, the company will be faced with some notable challenges. First, it will have to execute full integration of the acquired applications if it wishes to mine its large customer base. Second, the new products will further complicate the manageability of Symix' portfolio of product lines that currently run on disparate platforms. We are aware of Symix' efforts to converge its products so that they run on identical platforms in the foreseeable future. Third, Symix will have to create mind share within the industries it had not targeted in the past (e.g., healthcare, hospitality/service, financial services), which it intends to target now with its recently acquired products.

User Recommendations

Symix should be included on a short list in any selection within the SME market (companies with $30M-$500M in revenue) where discrete manufacturing, assembly, and distribution modules are the main pillars of an enterprise application. Furthermore, companies from other industries may benefit from evaluating Symix' components on a stand-alone basis for their e-business and CRM needs and leverage that information against other vendors in the selection.

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