Event
Summary
On January 18, the government of China's Wu Qing Economic and Technology
Development Area announced the honor list of outstanding enterprises registered
in its area. Fourth Shift Asia, an enterprise applications
provider for small to medium manufacturing enterprises with main HQ in
Minneapolis, MN, USA, was recognized as one of the top three companies
for its large contribution to the health and well being of the Wu Qing
District.
"We
established our operations in China about 12 years ago," says Dave Gahn,
Vice President, Asia. "Receiving this award affirms Fourth Shift Asia's
healthy growth and contribution to the economy in China. We remain committed
to providing Complete Care products and services to our 300+ customers
here to help them become more productive and profitable."
Fourth
Shift Corporation (NASDAQ: FSFT) initially entered China to work on the
localization of its software system, setting up operations in Tianjin.
This effort helped Fourth Shift to become the first American software
developer to receive an endorsement for financial software from the Government
of the People's Republic of China. The evaluation confirmed that data
within the system conformed to the financial rules and accounting standards
of China. Today Fourth Shift Asia has offices throughout China, including
Beijing, Guangzhou, Shanghai, and Tianjin. Fourth Shift also has several
offices in the Asia-Pacific region.
The
news comes as a crumb of comfort in light of the company's disappointing
performance in 2000. In January, Fourth Shift reported a net loss of $0.08
per share, for the fourth quarter ended December 31, 2000, compared to
a profit of $0.04 per share a year ago (See Figure 1). Included in the
fourth quarter results was a one-time charge of $0.03 per share for an
expense reduction plan implemented during the quarter. Total revenue for
the quarter was $14.9 million, a 17.2% drop compared to $18 million a
year ago. Total revenue for fiscal 2000 was $61.2 million, which is 11.6%
drop compared to $69.2 million for fiscal 1999. The net loss in 2000 was
$4.9 million, compared to a net profit of $1.9 million in 1999. Particularly
disappointing was the 26.5% drop in annual license revenue to $15 million
from $20.4 million in 1999 (See Figure 2).
Figure
1.
Figure
2.
"The
year 2000 is a good year to have behind us," said M. M. Stuckey, Chairman
and CEO. "The entire enterprise market has been soft all year and has
yet to recover. We go into this New Year with a significantly reduced
cost structure, a reorganized and revitalized organization, and an excellent
browser-based product line. We are conservatively optimistic for a profitable
2001, even if current market conditions remain static."
On
January 9, Fourth Shift announced the release of Fourth Shift 7.10,
which features "My Fourth Shift Workplace," a web user interface (WebUI)
that puts the Fourth Shift ERP system in a browser and lets manufacturers
set up portals to view that data together with other resources they need
to perform their jobs. My Fourth Shift Workplace also enables users to
create configurable views of their Fourth Shift data called portals. A
portal can include the Fourth Shift program itself, as well as existing
intranet resources, third-party browser-based applications, or even independent
internet web sites. Users move between pages by clicking on tabs and hyperlinks.
The
FS Explorer displays all of the available WebUI features in an easy to
use "tree" view that can be expanded and collapsed. Search capabilities
are also available to allow the user to quickly find a WebUI feature.
The company cites these features as enabling users to use Fourth Shift
with minimal training. My Fourth Shift Workplace works with both SQL Server-based
and mdbs TITANIUM configurations for the Fourth Shift ERP Suite.
Market
Impact
These
are by no means easy times for smaller applications vendors, and Fourth
Shift's predicament is a perfect example. The CEO's brief statement reveals
that the company is in survival mode. Look for a slew of similar announcements
from its peers that are also in the conundrum of how to expand their products
offerings, deliver a modern, Web-based product architecture, and defend
their turf from each other and from ever more intruding and succeeding
bigger brethren, while coping with much scarcer resources. A big shakeout
among the mid-market vendors should be expected within the next 6-18 months.
While
the last couple of years have seen a growing awareness of the mid-market
as fertile ground, one should expect 2001 to witness a real explosion
in this space as customers will want to take advantage of the abundance
of offerings tailored to suit their needs. Coupled with the anticipated
shakeout and downfall of some incumbent players, the result will be a
dwindling number of competitors and also contract price reductions (meaning
lower margins for cash strapped smaller vendors) to suit the constrained
budgets found in the mid-market.
However,
while it is disconcerting that the revenue pipeline seems to be all but
dried up, Fourth Shift has realized that simply curbing costs will not
suffice. The company has to more vigorously exploit its enviable worldwide
geographical coverage compared to its peers. Its product has traditionally
exhibited strong multi-national capabilities in terms of languages and
currencies support. Fourth Shift was the first ERP vendor to be certified
by Chinese authorities to sell in China's expanding market, where there
is little real competition.
Furthermore,
Fourth Shift continues to deliver attractive, innovative products for
its target market. We previously expressed our views regarding Fourth
Shift's new product strategy called Complete Care (for more information,
see Is
Fourth Shift Succeeding in Providing 'Complete Customer Care'?). Although
the company keeps abreast of the latest developments, it tries not to
alienate its more conservative customers with abrupt new technology introductions.
A good example is its new thin client called WebUI, which supports Internet
connectivity and intuitiveness, and is still overwhelmingly popular with
plant-level users. These product initiatives should provide inexpensive
benefits to cost-weary smaller manufacturing enterprises.
However,
the above moves should be backed up with substantial progress in developing
an indirect channel to supplement the company's strong direct sales force.
Without it, we believe the company's growth will be insufficient and it
will remain marginally profitable. This is particularly true in light
of Tier 1 vendors learning the importance of resellers in the lower end
of the market (for more information, see SAP
Claims Big Gains In The Low-End Battleground, and PeopleSoft
Joins The Hunt For SMEs ).
User
Recommendations
While it is unclear how many smaller vendors will survive the shrinking
and more crowded market intact, avoiding either bankruptcy or assimilation;
Fourth Shift may well be one of those that survive the shakeout. The company
has long demonstrated a deep understanding of the low-end of the ERP market
dynamics and its requirements of inexpensive products, fast and easy implementations
and good service. Moreover, the depth, breadth and innovativeness of its
offerings to the SME market are attractive at first sight and deserve
due attention.
More
comprehensive recommendations for both current and potential Fourth Shift
users can be found in Fourth
Shift Corporation: Working Overtime To Provide Complete Customer Care.