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Walker Propelled by Winds of Change

Written By: D. Geller
Published On: October 10 2000

Vendor Genesis

Two phrases that one rarely hears together are "IBM/390 mainframe" and "eBusiness", but to Walker Interactive they make a perfect sentence. Walker has carved out a very nice niche for itself as the financial backbone provider to the giants. Now it is altering its product line - dropping some products and developing a new architecture and positioning for the others - to carry its clients into the eCentury. With 80% of the world's data still estimated to reside on IBM mainframes, Walker doesn't seem to lack for business.

Walker was incorporated in California in 1973, where it began and is still headquartered, and reincorporated in Delaware in 1992. Walker's high-end clients are among the most demanding in the world. Companies like United Airlines and K-Mart have millions of customer transactions to deal with and demand incredible uptime reliability. The IBM/390 platform has both the capacity and the stolid reliability to make it a natural base for these customers' back-end systems. Walker has traditionally supplied a family of client-server financial, operational and analytic applications to large enterprises and larger mid-sized businesses. The applications included planning, budgeting, forecasting, consolidation, financial, performance, work, materials and procurement management. Key verticals have been banking, transportation, utilities, retail, education, and government.

Coming into FY1999 Walker had four product lines:

  • Tamaris, the keystone enterprise-level application suite

  • Aptos, a version of Tamaris for the mid-market, running on NT and Solaris servers

  • Horizon, a suite of analytic applications designed for financial reporting, acquired with the purchase of Hunt Systems Group in 1996

  • IMMPOWER, enterprise-level asset management for capital-intensive companies, added when the company purchased Revere, Inc. in 1997.

Flash forward to the future for a very different picture. In the second quarter of 1999 the company decided to emphasize the Tamaris and Horizon lines and to refocus itself as a provider of eBusiness solutions for enterprise-level customers. It chose to sell the Aptos and IMMPOWER lines; divestiture of IMMPOWER was completed in April 2000 and the company has a letter of intent that should result in 3rd quarter divestiture of Aptos. Combined revenues associated with the IMMPOWER and Aptos product lines were $13.6 million, $15.7 million, and $4.4 million in 1999, 1998 and 1997, respectively.

Figure 1 shows Walker's revenue and net income history. It is important to note that there were significant accounting corrections in 1994 and 1999, and smaller ones in 1996 and 1997. The most recent, in 1999, was for a total of almost $15 million relating to the change in corporate strategy and to technical revaluations of capitalized software assets, associated with the planned divestiture of Aptos and IMMPOWER. Thus the apparent dip in income for 1999 should not be compared on an apples-to-apples basis with the previous years.

Figure 1. Walker Interactive Revenues and Net Income



click here for larger view

Figure 2 shows how Walker's revenues have been derived from software licenses, consulting and maintenance. Given the complex nature of the institutions that Walker serves it is not surprising that consulting should be a large part of their business. The ratio of consulting to licenses should change over the next two to three years with the addition of ASP customers.

Figure 2. Walker Interactive Sources of Revenue

In June 2000 Walker adopted a Stockholder Rights Plan under which all stockholders of record as of June 22, 2000 will receive rights to purchase shares of a new series of Preferred Stock. The adoption of the Rights Plan is intended as a means to guard against abusive takeover tactics and according to the company is not in response to any particular proposal.

Vendor Strategy and Trajectory

The new business plan emphasizes what Walker has dubbed "deep e-business." This reflects the company's claim that, rather than graft a browser interface to existing applications, it has done a thorough rewrite to provide seamless integration between front- and back-end systems. The new technology is based on Java server technology, with IBM's WebSphere application server being the platform of choice.

The new eBusiness model is defined in terms of five operational areas. Three define products:

  • e-procurement, which supports all aspects of the procurement cycle from requisition through payment.

  • e-revenue, which encompasses electronic billing, including collections and cash application

  • e-insight, delivery of analysis to management through a portal

The other two operational areas are the technology architecture that supports all of their products and the consulting and service operation.

The Horizon suite is incorporated into the e-insight area, but is also maintained as a separate product line. It works with a variety of operating systems and On-line Analytical Processing (OLAP) databases, and can be used with non-Walker financial and operational systems. Its functionality includes planning and forecasting, consolidated reporting, and OLAP reporting and analysis.

The company's overall strategy is focused on its key differentiator: "Everything we do is built for volume," says Debbie Day, Walker's VP for E-business Solutions. "We have server-side processing in our blood."

Although it might not seem at first that Walker's strengths in volume processing have much application to mid-market firms, the company believes that it has a value proposition for them as well. It intends to reach transaction-intensive firms in that space with an ASP offering. This has the potential of multiplying their potential customer base by as much as fourfold. The company's ASP offerings are hosted by Data Dimensions and by IBM Global Services.

ANALYSIS

Vendor Strengths

Walker has carved out a tidy niche. Although it can certainly see competition from such giants like SAP, PeopleSoft, and Oracle and slightly smaller (although bigger than Walker) specialists as Comshare, QAD and System Software Associates, none of these pegs fits exactly into Walker's peghole.

The ability to serve businesses with many millions of transaction-generating clients is not one that can be easily replicated. (Which is not to say that it cannot be replicated at all; see Vendor Challenges - located on the next page.) Walker has developed a good set of vertical clients, which it supports with specialized features. By moving into the middle-tier in such industries as banking and utilities the company should be able to gain considerable momentum.

Perhaps the greatest strength that Walker has right now is its courage. Its stock was clearly impacted by its decision to redirect itself, although it bounced back in the early part of 2000 and has not been much more volatile than the market as a whole. Developing such an audacious plan and acting on it shows that the company has the management strength it needs to defend and expand its turf.

Vendor Challenges

At some point in the movie that bears his name, Ivanhoe (played by Robert Walker) takes on, single-handedly, all of the knights loyal to Prince John. It's early in the movie, so poor Ivanhoe is eventually wounded, to lie near death for many days being cared for by Elizabeth Taylor while other sub-plots are developed. Is our Walker another Ivanhoe? Pushing off into deep e-business was a necessary step to continue to serve existing customers and attract new ones. But it of course reflects the reality that rivals were already sharpening their lances. One of the questions is whether Walker has made its new suit of armor strong enough. We'll have to wait and see on that one.

Another question is whether Walker can survive its radical transition. In its new incarnation there are and will be many possibly unexpected changes. For example, while Walker used to do most of its software development in India, its new model calls for leading edge skills that it has only been able to find in the U.S. This is not necessarily bad, since the higher costs can be recouped from a greatly improved product, but it does signal that the corporate changes may be pervasive. Another kind of change will be the switch to ASP revenues. Selling and supporting ASP is a new game and, even with its ASP partners running interference, Walker will find itself interacting with customers in a different way.

BOTTOM LINE

Vendor Predictions

Walker is sitting on a very sharp razor's edge. In the last two years the stock price has declined from a high of twenty to a low of less than three. (See Figure 3.) Although it is clear that some of the decline mirrors the general situation in technology stocks, the price is coming perilously close to the book value per share, which would make Walker an extremely desirable takeover target. On top on any purely financial considerations, Walker also has expertise with high transaction volumes that would be of value to other companies. Its customer list would also be a valuable acquisition.

TEC believes that there is a good chance (60%) that Walker's board will be made an offer it cannot refuse within the next eighteen months. A likely candidate here is Sybase, which continues to recast itself as a vertical solution provider, see Sybase Tag-Teams with Informatica). Or, given Walker's tight technical ties to IBM, a purchase or large equity investment by that company is a possibility.

We should note, though, that Walker's restructuring makes its current vulnerable financial situation inevitable, and with luck and skill - the former being unpredictable but the latter something the company has demonstrated before - it can climb quickly from its current position during the next few quarters.

Vendor Recommendations

Walker should intensify its efforts in the middle-tier with its hosted solutions. First because of the potential size of the market, and second because its already long sales cycle has gotten even longer with its transition to eBusiness. Hosted solutions can be easier decisions for a company to make than licensing, with its attendant server and infrastructure costs, and shaving even a few weeks off the sales cycle can have measurable results over a few quarters.

We also have to wonder if the company is wise to continue with its Horizon products. There is growing competition in analytics, and even if some of these competitors cannot compete in Walker's high volume market (which is not obvious at present) Walker might do well to cede the field to them by licensing its technology while retaining the right to incorporate it in the new eBusiness products.

User Recommendations

The bottom line for the user is that Walker remains an excellent option for high-volume transaction processing, especially in its core verticals (transportation, banking, education, retail and utilities). In particular, for companies just below the highest tier, Walker's hosted solutions might be an excellent way to enhance both front- and back-office capabilities.

 
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