IFS Marches On, Although With a String of Losses

Event Summary

In August, IFS Industrial & Financial Systems, a business applications vendor with main headquarters in Linkoping, Sweden, reported results for Q2 2000 (See Figure 1). IFS net sales for the first six months increased by 17%, to $117 million, compared with $100 million for the corresponding period in 1999. License sales rose by 85% during the first half of 2000, with a total revenue increase of 94% during the second quarter. A total of 200 new customers were signed during the first six months. However, IFS reported a loss of $ 6 million after net financial items, compared with a loss of $ 1 million for the first six months of 1999.

Figure 1.

"We continue to have the fastest-growing increase in enterprise application/e-business license sales in the world," commented Bengt Nilsson, president and CEO of IFS. "IFS has retained its technology leadership thanks to major investments in product development - considerably higher than the industry average. The result is IFS Applications 2001, which was launched globally in August and features 500 major improvements. Focusing on supply chain integration, IFS Applications 2001 includes Open Portal Framework which allows seamless integration of any data or information source, e-business process such as marketplaces or exchanges, enterprise applications, point solutions or other best of breed applications. It has already received favorable reviews by leading industry analysts."

Like its competitors, IFS has noted a decrease in consulting revenue, which was down by 7% during the first six months. As IFS' increased license revenue indicates, companies are focused on the purchase of new IT products that will take them into the e-business era rather than on investments in support services.

"Another reason for the drop in consulting revenue is that the new versions of IFS Applications require less input from consultants, which is, of course, very positive for both our customers and for our continued growth," Bengt Nilsson pointed out. "No one in the industry was able to predict the magnitude of the slump the industry has just experienced. But given the clear signs of an upswing that we and others can discern, our goal of a positive year-end result remains intact," Bengt Nilsson concluded.

Market Impact

The main theme depicting IFS' business during recent years has been fast growth and international expansion. While the majority of its direct competitors have been struggling to reinvent themselves in the new Internet-driven economy, IFS has continually been increasing its market share. We believe that its recipe for success is a good balance of the following required elements of the game - a flexible and technologically superior componentized product, a comprehensive e-commerce strategy, deep vertical functionality, reputable customer service and support, and prudent acquisitions and/or alliance moves in the past.

Those moves include last year's acquisition of Effective Management Systems (EMS), a supplier of both ERP and MES systems. IFS has also acquired a number of US-based system integrating firms that are now providing both sales and implementation support for the IFS Applications ERP suite. The latest in that slew of acquisitions was the purchase of the BBC Group, a San Jose, CA firm that specializes implementing B2B e-commerce solutions. We believe those acquisitions, as well as a strategic alliance with Pivotal Corporation, a Canadian CRM vendor (For more information, see What is IFS Up To in the CRM Arena?!), should help IFS boost its much needed North American presence and market awareness.

To that end, its North American business unit, with headquarters in Tucson, AZ achieved very impressive results of a 206% revenue increase from the same period of the last year. These results are significant for the following two reasons: 1) to build the company's mind share in the world's most prospective business applications market, and 2) to show that the heavy investments IFS has made in North America over the past several years have begun to pay dividends.

Nevertheless, the challenge of further international expansion and brand awareness remains. The perception of poor scalability and less-than-global presence within the higher-end of the market are the hurdles yet to be overcome. Moreover, one should closely watch future IFS profitability track. The company had posted four losing quarters out of the last five (See Figure 1), and its shareholders may be feeling nervous and start demanding a more consistent profitable performance.

User Recommendations

We generally recommend including IFS in a long list of an enterprise application selection to mid-market and low end tier 1 companies (with $50M-$1B in revenue) within the following industries: Energy, Engineer-to-Order and Project delivery, Forest Segments, Automotive, Service Management, and Transportation. IFS should be included on a short list in any selection within the following industries: Aviation, Engineer-to-Order and Project delivery, Service Management, and Transportation.

Current and potential users may want to inquire about the company's plans regarding Internet marketplaces in their respective industries. While the upgrade to its technology platform, called Foundation 1, is expected to make it easier to connect the components within the IFS Applications suite to the Internet as well as to third-party applications, and the new platform makes use of XML and industry specific communication standards such as those from RosettaNet, being all thing to all people is very unlikely. Therefore, users need to ask the following questions: which specific market places does (or will) IFS connect with, and what methodology does (or will) the company prescribe to.

Companies outside of the above-mentioned industries may benefit from evaluating IFS' e-commerce components on a stand-alone basis for their e-business needs and to leverage that information against other vendors in the selection. Remotely hosted Internet solutions may offer cost effective applications to small or mid-sized organizations, bearing in mind necessary customizations' ramifications.

However, potential clients should conduct preliminary research on industry expertise and reference sites of a regional IFS office or an affiliate service provider when IFS is included in the selection process due to its nascent distribution network outside of the European market.