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i2 Technologies: Is the Boom Over?

Written By: Steve McVey
Published On: February 9 2000

i2 Technologies: Is the Boom Over?
S. McVey - February 9th, 2000

Event Summary

i2 Technologies recently announced financial results for its fourth quarter and year ended December 31, 1999. Once again, its 1999 revenues and earnings reached record levels. Total revenues for the full year 1999 grew to $571.1 million, a 55% increase over $369.2 in total revenues for 1998. Excluding charges of $6.6 million associated with acquisitions, net income for 1999 grew 134% to $30.1 million, compared to 1998 net income of $12.8 million, excluding charges of $7.6 million associated with acquisitions.

i2 remains an exception in an enterprise applications industry for which consistently strong earnings are a rarity. In fact, i2's last recorded loss occurred during the second quarter of calendar 1997 in which it made two major acquisitions, THINK Systems and Optimax, totaling over $100 million.

i2 founder and CEO Sanjiv Sidhu attributes his company's success to wide market acceptance of i2's solutions for intelligent eBusiness, a broad application suite that marries i2's supply chain management products and services with Internet commerce enabling technologies.

Market Impact

The recent results reflect i2's immense popularity among information technology professionals. Its repositioning as an eBusiness provider has caught on with investors and ITWO is now a Wall Street darling.

In the midst of this good fortune, few would notice that i2 shows clear signs of decline. Figure 1 shows a marked decline in percentage revenue growth over the past four years, the past year bringing a 55% increase over 1998. This figure is still remarkable in light of its competition but is nonetheless a low point for i2. The similarity of the license and services trend lines indicates i2's consistent revenue mix over the years (5-year average: 63% license; 37% services & support).

There are several reasons behind the slowdown in growth. First, i2 is entering a more mature stage in its lifecycle. Because its products have gained such wide acceptance among Fortune 500 companies, some market resistance within the first tier is inevitable. Although i2 can expect some revival now that the Y2K bug has been exterminated, a greater source of revenue may not be gained until its mid market offerings take hold.

Other factors, such as competitive pressures from ERP vendors with like SAP (APO) and Oracle are bound to intensify over the next few years. Some sales execution problems experienced in the first half of 1999 are also to blame for the decline. These problems were highlighted by Sidhu after i2's second quarter and stemmed from sales personnel being unable to sell eBusiness products, a common problem for companies evolving to a new market, in this case Internet commerce software .

User Recommendations

While i2's revenues may not be growing as rapidly as in its youth, there is probably little cause for alarm. i2 benefits from a broad, feature-rich supply chain management software suite, significant technology for applying its applications to Internet fulfillment, a growing slate of online trading networks, a large customer base (although fewer than Manugistics), and a formidable capital position. Its market dominance makes it an attractive partner for e-Commerce, EAI, portals, and other software providers that will further enhance its position.

One market in which i2 has failed to build a presence is application hosting. Vendors like Logility and Descartes Systems Group seem to have more partnerships and offerings in place, although i2 has made a small entry with Factory Planner (FP) via its new online marketplace, HightechMatrix.

Mid market companies in electronics/high tech who want a hosted application for finite capacity planning and detailed manufacturing or distribution scheduling may want to try the new FP offering, but should ask for a free trial and set moderate expectations.

 

 
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