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.