Event
Summary
On November 21, Epicor Software Corporation (NASDAQ: EPIC), a leading
mid-market supplier of enterprise applications, introduced the immediate
availability of Epicor eManufacturing, the next generation of its former
Vantage manufacturing solution. Designed to support the e-business needs
of growing mid-market companies, the new product features enhanced database
support and now works with both Progress and Microsoft SQL Server databases.
Epicor eManufacturing also incorporates Epicor eCommerce Storefront, to
bring manufacturers a more complete solution for e-commerce and global
business.
In
addition to increased platform support and front office integration, Epicor
has added a number of enhancements to extend the international functionality
of Epicor eManufacturing, including enhanced support for European taxes
and multi-currency price lists. Epicor eManufacturing offers added functionality
to support some key vertical industries, including additional project
capabilities for capital equipment manufacturers.
"Midmarket
companies demand products that are specifically designed with their needs
in mind, including expanded platform support, international support and
eCommerce tools," said Mollie Hunter, vice president of product marketing
for Epicor. "With Epicor eManufacturing, we're introducing a solid product
that serves the broadest range of manufacturers to date. Not only will
Epicor continue to support its strong base of existing Vantage customers
using the Progress-based software, but the addition of a SQL Server version
enables Epicor to extend its brand to an even wider community of mid-market
manufacturers."
However,
the product launch seems to have, in a great part, taken a toll on the
company's financial performance. On October 31, Epicor announced results
for its third quarter ended September 30, 2000. Total revenues for the
third quarter were $51.9 million compared with $63.2 million for the third
quarter of 1999. Net loss for the third quarter of 2000 was $12.3 million,
compared with a net loss of $9.7 million for the same period last year
(See Figure 1). The net loss for the third quarter of 2000 includes charges
totaling approximately $6.4 million, related primarily to the write down
of certain capitalized software development costs to estimated recoverable
values. Exclusive of these charges, net loss for the third quarter of
2000 would have been $5.9 million. The company's total cost and expenses
for the third quarter, excluding unusual charges, are 19% lower than the
third quarter of 1999, indicating that the company has streamlined its
operations to maximize its opportunity for future profitable growth.
Figure
1.
The
company believes that the weakness in demand for new software licenses
is due to several factors experienced across the technology and software
applications sectors, including seasonal slowness during the summer months,
currency fluctuations, extended sales cycles as customers continue to
transition to the purchase of integrated and comprehensive eBusiness suites
and the focusing of sales resources on its new suite-based strategy. Software
license revenues were also impacted by the company's transition to an
exclusive reseller channel during the third quarter. The company expects
that many of these market conditions could continue to affect demand for
eBusiness and enterprise applications for the balance of the year.
The
company also announced that it was restating its previously reported financial
results for the first and second quarters of 2000 solely for the purpose
of increasing the allowances related to the company's aged accounts receivable.
The revised net loss for the period ended March 31, 2000 is $14.2 million,
while the revised net loss for the period ended June 30, 2000 is $8.8
million (for more information, see Epicor
Continues To Bleed).
Market
Impact
2000
seems to be possibly worse for Epicor than its harrowing 1999. In addition
to the slowdown reasons cited by the company's management, which have
also affected most of its competitors, Epicor's situation has been particularly
aggravated by protracted indigestion from the acquisition of DataWorks
Corporation, a mid-range manufacturing ERP supplier which with a history
of acquisitions of its own, had a diverse set of products for different
markets and/or company sizes.
While
the acquisition has made Epicor one of the largest mid-market ERP vendors,
the company has also been burdened with a long list of diverse products
to be incorporated into a clear product strategy. Unlike most vendors
in the ERP space, Epicor maintains multiple manufacturing and non-manufacturing
products, targeted at a variety of vertical markets. Continuation of an
unfocused, multi-product and multi-technology strategy in markets with
diverse dynamics continues to multiply sales, R&D, and service & support
costs - jeopardizing the likelihood its products could stand a chance
of long-term success in their respective niches. Epicor seems to have
undertaken too much at once. The challenge of Web-enabling and integrating
its front-office suite to all its back-office suites, and delivery of
vertical solutions, seems colossal at this stage. The strategy of some
of its competitors like Great Plains and Navision, which have decided
to deliver their capabilities in manageable chunks, seems to have paid
off even though their offerings are narrower than Epicor's.
Further,
Epicor's requirement of exclusivity for its resellers has caused its indirect
channel to dwindle and has reduced its ability to attract new resellers.
While exclusivity might create deeper commitment and expertise in its
reseller channel in the long term, we believe that the timing of the initiative
was poor. As a result, new license revenues have been constantly declining,
in contrast to many significant competitors, which have been maintaining
immaculate relationships with their respective channels. Epicor's losses
(See Figure 1) are a direct result of these challenges, and we believe
the next 12 months will be the company's make-or-break period.
On
a somewhat brighter note, Epicor remains a prominent mid-market leader
due to its focus and understanding of the mid-market. It has established
very good global infrastructure and product capabilities, as well as a
vertical focus for some industries. The current hardships have apparently
not affected its service & support delivery or its customers' satisfaction
levels. As a matter of fact, Epicor offers an implementation guarantee
regarding time duration and fixed costs. Finally, the long awaited delivery
of its main manufacturing product should significantly relieve the company's
R&D burden. This also promotes it as one of the first mid-market vendors
with natively provided integrated back and front offices.
User
Recommendations
While Epicor's financial situation has significantly deteriorated during
the last 15 months, the company should not yet be written off. Users are
advised to follow the company's new product introductions and keep a close
eye on its future performance. Also important will be to watch how well
it will maintain its indirect channel, how well it will target the right
e-business issues for mid-market enterprises and demonstrate the touted
benefits to the prospect or customer in order to increase the new licenses
growth.
More
comprehensive recommendations for both current and potential Epicor users
can be found in Epicor
Software Corp.: How Far From Being 'One-Stop' Shop?