Infinium Software, Inc.: Having All the Right Cards?

Vendor Summary

Infinium Software Inc. develops, markets, and supports enterprise business applications for service organizations, mid-sized companies and divisions of large global corporations. Founded in 1981 with headquarters in Hyannis, MA, USA, Infinium ranks among the Top 20 ERP vendors with $122 million in revenue in fiscal 1999 (approximately 12% thereof derived from the international market).

The company has two major product lines. The first one, designed for IBM AS/400 computers, automates financial, human resources, materials management, process manufacturing, and customer relationship management (CRM) functions of organizations in a broad range of industries worldwide. Its second product line, released in 1997, and called Infinium Advantage, is designed to automate human resources management systems (HRMS) and payroll on a Microsoft Windows NT Server. Infinium also helps clients migrate to network computing installations. Services account for nearly three-quarters of total revenue.

In 1981, Robert Pemberton, the current Infinium's CEO & President, founded Software 2000 (the name was chosen for its futuristic connotation at the time) to develop software for IBM System/38 minicomputers. The company shifted its focus to the AS/400 platform after it was launched in 1998. Due to the international popularity of AS/400 platform, Software 2000 opened offices in Singapore and London, UK during the mid 1990s. In 1996, EVP Frederick Lizza was named president and CEO.

In 1997, the increasing noise about year 2000 compliance and consequent confusion with Software 2000 name prompted the company to change its name to Infinium, after its financial application. In the same year, the company also introduced a Windows NT software line. The impact of this investment lead to significantly reduced profits in coming years. In 1998, Infinium bought the payroll software specialist company, Cort Directions. In 1999, Lizza resigned and was replaced by founder Pemberton. The cost of discontinuing some obsolete product lines created losses in fiscal 1999, for the first time in Infinium's recent history. In 2000 Infinium bought Dutch Web-based customer relationship management (CRM) application provider Dexton Information Systems, and formed a separate line of business, Infinium ASP, to build its application service provider business. Infinium went public in 1995 and currently trades on NASDAQ.

Vendor Trajectory and Strategy

Over past two decades, Infinium has shown the commitment to deliver solid back-office functionality and customer support within certain industries. Infinium is considered an undisputed leader in the hospitality & gaming industry with over 70% of market share. Its focus on AS/400 and the decision not to fully embrace a true client/server concept resulted in modest growth during the 'golden' years of ERP. Nevertheless, by the end of 1999, the company had more than 2,000 customers worldwide. The company offers its product and services through a worldwide network of over 20 branch offices and through business partner channels worldwide.

The company believes that its host- and network-centric product architecture, which was possibly disadvantageous a few years ago, positions itself well for the new Internet economy. Following the market trends, Infinium has recently made an energetic push into a number of prospective areas such as: Web-enablement and self-service product capabilities, business intelligence, CRM, and application hosting services.

Particularly notable is its aggressive move to become an applications service provider (ASP). The company believes that will help it become platform-agnostic and will compensate for its decision to downplay the development of its NT-based product. In order to effectively deliver its ambitious undertaking, Infinium has reorganized itself into four lines of business (ASP, eBusiness, CRM, ERP & AdvaNTage), each having a general manager and unique P&L and business plan, while the general & administrative staff will be shared.

We expect Infinium Software to continue its focus on the lower-end of the ERP market (companies with $25 million - $5 billion in revenues), by maintaining and enhancing the existing functionality of its Infinium solution. The product will likely be enhanced also through 3rd-party alliances in the areas of Advanced Planning & Scheduling (APS), Product Data Management (PDM), reporting, and transportation management. The company recently announced its strategic alliances with elcom.com and TRADEPAQ Corporation for business-to-business (B2B) e-commerce and supply chain collaboration within its industries of interest. Additionally, Infinium will invest more aggressively in sales and marketing, international business expansion through distributors, and will seek to become more verticalized, concentrating on the hospitality/gaming, transportation, healthcare, retail, and process manufacturing industries.

ANALYSIS

Vendor Strengths

• Infinium has long embraced concepts of component (modular) technology in designing its product; While its product is not based on object oriented programming (OOP) code, it has nevertheless provided a great number of APIs for interconnectivity among its own and 3rd-party components, all providing for flexibility and incremental deployment. Infinium is generally competitive in speed of implementation, total cost of ownership (TCO), and price/performance ratio. Furthermore, the Company supports both IBM and Microsoft endorsed middleware standards and is well poised for future technological developments and requirements.
  
  
• Concurrently with interconnectivity and workflow enablement of its suite, Infinium has also developed strong back-office functionality (human resources/payroll and financial management, material management, and process manufacturing) and sharp vertical focus for some industries (See Vendor Industry Focus). Also, it has struck a good balance between expanding its core ERP product through acquisitions and product alliances.
  
  
• Infinium has achieved solid long-term track record and congenial corporate culture manifested in honest and fair treatment of customers, and in prudent acquisitions and/or strategic partnerships with other leading vendors. It has been known for adroit blending of 3rd party products with its own and delivering the blended product as a tightly integrated unit. As an example, one of its strongest vertical industries is transportation to which Infinium delivers the feature product in partnership with Rippe and Kingston Systems.
  
  
• Infinium's timely initiatives in the CRM and ASP arenas may result in ample opportunities for increased business. Particularly its acquisition of Dutch CRM vendor Dexton Information Systems may result in a true synergy for the following reasons. First, Dexton had a renowned market presence and customers within the European market, which supplements Infinium's North American strong presence. Second, there is platform compatibility, which should mitigate the integration effort to a degree. Third, in addition to a very comprehensive CRM product suite, Dexton offers interfaces to SAP, J.D. Edwards, SSA, and JBA, which create additional selling opportunities. On the ASP side, owning all elements of ASP business and its readiness to accommodate some degree of customization as well as future wider platform support of its outsourced applications may reduce customers' initial reticence to venture into the uncertain land of ASP.

Vendor Challenges

• Infinium is confined to the AS/400 platform, which does not provide it much maneuverability within an already crowded market with a declining growth rate. While the ASP's mantra of being 'platform agnostic' may alleviate the problem, the ASP business model is still unproven on a large scale. Although many CIOs make outsourcing software a serious consideration for any future IT plans, few are willing to jump on the bandwagon at this stage.
  
  
• Infinium has not achieved very strong mind share and brand awareness outside of its niche industries, despite strong horizontal ERP functionality and a fair global presence. Very few practitioners are aware, for example, of the fact that Infinium financial and HR/Payroll modules often can go head to head against SAP, Oracle, or PeopleSoft. The situation had long been additionally aggravated by a bland user interface, although it should be resolved to a degree with the release of new Web-based GUI.
  
  
• The company's financial position during the last 9 months has been eroding (see Fig. 1 & 2 - Infinium Software Inc. - Annual & Quarterly Results Chart) due to the combined effects of decreased license revenue, significant investments and obsolete products' write-offs. While Infinium's cash situation is still solid, any hiccups and delays in its product development execution, possibly bundled with continued poor sales execution, may put further significant strain on it. Furthermore, the return to its hefty investment in the ASP part of the business remains dubious in the immediate future, despite Infinium's initial success in attracting a few early adopters.
  
  
• Despite mitigating factors such as the focus on the AS/400 platform and the proven interconnectivity of the product, the company faces the challenge of delivering its very ambitious undertakings (full Internet and wireless product re-architecting and disparate product integration) as planned. Any product integration requires a painstaking effort, and most of it is still in various stages of progress throughout the Infinium product suite, with plans to deliver fully Web-enabled product in August 2000 (70% probability). Furthermore, Infinium has only very recently announced its strategic partnership with elcom.com and TRADEPAQ regarding e-commerce and vertical marketplaces, which will additionally burden products integration workload.

Figure 1.

Figure 2.

BOTTOM LINE

Vendor Predictions

• Fiscal 2000 will prove to be challenging for Infinium. We predict flat revenue or minor revenue growth (maximum 10%) as the best scenario, with a return to profitability in fiscal 2001 (60% probability). However, despite a competitive environment, we predict that Infinium will reach $200 million in revenues within the next 4 years (60% probability), assuming its success in the ASP and CRM markets.
  
  
• Infinium's service and support revenue will contribute more than 65% of its total revenue within the next 4 fiscal years (60% probability), based on the company's readiness to integrate its products with other 3rd party products. Within the same period of time, we believe Infinium CRM products will contribute more than 15% of its license revenue (60% probability).
  
  
• Within the next 4 years, more than 25% of Infinium's revenues will come from outside the US market (70% probability). We believe that Infinium is an unlikely candidate for acquisition by a competitor within the next 2 years (30% probability) due to its broad functional scope and recent restructuring and/or acquisition activities. We also believe that it will remain among the Top 20 ERP vendors within the next 4 years (70% probability).

Vendor Recommendations

• Infinium should expand its visibility within the global ERP market in the following ways:
  
  
  • Expand business in its existing customer base, by upgrading older versions of software and by offering new extended ERP modules and enterprise applications.
    
    
  • Further expand its global presence, both by opening new offices and developing new affiliate partnerships. Consider acquiring or partnering with affiliates of struggling competitors, e.g., SSA and Baan. Also, target customer bases of these vendors, which are contemplating a technology switch.e.g., SSA and Baan. Also, target customer bases of these vendors, which are contemplating a technology switch.
    
    
  • Deliver more new, focused and pre-configured vertical solutions (e.g., professional service automation), and vigorously market its differentiating ASP value proposition to make Infinium attractive to resource-constrained enterprises.
    
    
• Infinium must remain committed to new product introductions and take more decisive steps regarding the B2B e-commerce vertical applications delivery, possibly through product alliances. It should also enhance its core ERP product with some currently missing functionality (e.g., 'catch-weights' and potency, for the process manufacturing).
  
  
• Conduct ongoing cost and organization scrutiny to identify opportunities for further improvements. In fiscal 1999, the general & administrative personnel count, as a percentage of a total number of employees, was one of the highest in the industry, 15%, compared to the industry average of 11%. Furthermore, the service & support employees' count was 38% (compared to the industry benchmark of 44%), this is somewhat out of sync with the high contribution of service revenue (73%) to Infinium's top line (industry average 64%).
  
  
• We encourage the company to market more aggressively and to reinstate strong relationships with leading analyst houses concurrently with the above-mentioned developments.

User Recommendations

• We generally recommend including Infinium in a long list of an enterprise application selection for mid-market and low-end Tier 1 companies (with $100M-$2B in revenue) as well as for divisions of Fortune 1000 companies within the following industries: hospitality & gaming, transportation, healthcare, retail, process manufacturing, and financial services.
  
  
• Infinium should be included on any package selection short list within the above markets where financial, human resources/payroll, and process manufacturing are the main pillars of an enterprise application. Users from industries not mentioned above may benefit from evaluating some stand-alone Infinium's product components (e.g., CRM, HR, and BIAS - business intelligence application suite) on an opportunity-by-opportunity basis and as leverage against other vendors in the selection exercise.
  
  
• Organizations seeking a Web-based solution and out-of-box functionality with some customizing effort may benefit from evaluating Infinium ASP offering. Support, connectivity, ease of use, security, acceptance, and scalability are only a few regular considerations.
  
  
• As for the newly added and/or anticipated functionality through product alliances, users are advised to ask for firm assurances on the availability and timeframes of future upgrades, and more detailed scope of combined product functionality.