Event
Summary
On December 4, J.D. Edwards & Company (NASDAQ: JDEC), one of the
biggest providers of enterprise applications, reported financial results
for the fourth quarter and fiscal year ended October 31, 2000. License
fee revenue grew to $137.4 million in Q4, 2000, a 36% increase over license
fee revenue of $101.1 million in Q4 1999 (See Figure 1). It represents
the second largest quarterly license fee revenue results in company history.
Total revenue for Q4 2000 was $277.2 million, compared to revenue of $257.6
million in the same period last year. Net income from normalized operations
tripled to $12.3 million, compared to $3.8 million in Q4 1999. Amounts
from normalized operations exclude amortization of acquisition-related
intangible assets, restructuring and other related costs, and gains on
sales of equity investments and product line.
Figure
1.
For
the fiscal year ended October 31, 2000, total revenue reached a record
$1.0 billion, a 6% increase compared to revenue of $944.2 million in fiscal
1999 (See Figure 2). License fee revenue was $419.1 million, 34% higher
compared to $312.8 million in the fiscal year ended October 31, 1999.
Nevertheless, the company posted a net loss of $15.4 million for fiscal
2000. This net loss, however was significantly reduced compared to the
fiscal 1999 net loss of $39.2 million.
Figure
2.
"J.D.
Edwards has great momentum right now," said C. Edward McVaney, President
and Chief Executive Officer. "Fiscal 2000 proved to be an extremely successful
year with revenue at an all time high, greatly improved profitability,
over 70 transactions more than $1 million, and the release of our new
100% web-enabled product, OneWorld Xe. We've emerged as a true leader
in the rapidly-growing collaborative supply chain market and, unlike our
competitors, can leverage our leadership in supply chain fulfillment to
offer a complete supply chain solution. Our strength in this area is illustrated
by the significant portion of license transactions that include our supply
chain solutions - over half of our license fee revenue this quarter was
generated from transactions including these solutions."
For
the second consecutive quarter, the company's collaborative supply chain
solutions were a driving force in the strong license fee growth. J.D.
Edwards claims to hold a unique position in the supply chain market, providing
fully integrated Advanced Planning and Fulfillment solutions. The major
event of the quarter, however, was the general availability of 100% Internet-enabled
OneWorld Xe - OneWorld Extended Enterprise, which happened in September
2000. (For more information, see J.D.
Edwards Touts Leadership in Collaboration and Flexibility - There Seems
to be Some Notable Functionality Too).
Market
Impact
The
last 12 months have been indisputably bittersweet, marked with a significant
business model change and the shift of the company's focus. While the
overall revenue growth has been dismal, J.D. Edwards has apparently recently
been rebounding by focusing on Internet collaboration and extended-ERP
applications, much of them coming from 3rd parties. The company has also
differentiated itself from competitors by embedding Enterprise Application
Integration (EAI) into its OneWorld Xe product. The idea - to spare customers
from investing in 3rd-party EAI products to link disparate best-of-breed
systems together - is certainly attractive. This is also a more sophisticated
approach than the traditional EAI one given that most other vendors only
enable users to integrate 3rd-party packages by providing them with application
programming interfaces (APIs) that then require further coding.
While
J.D. Edwards' move into the EAI arena is unquestionably risky, we commend
its determination to take the plunge and include integration systems into
the core product offering. Native integration has recently been becoming
less of an issue; acquiring the best products at an acceptable price to
meet an e-business strategy is the prevalent issue nowadays.
What
may play even more important role in the company's license revenue revival
is its strong native supply chain planning and collaboration functionality.
This proves our belief that being only a glorified system integrator would
not suffice in the long run.
Nevertheless,
managing the large application portfolio, much of which involves partnering
or extensive integration and customization, will be intricate and a challenge
in itself. In addition to all apparent and hidden difficulties of integrating
disparate products, the cost of this strategy is also growing. Namely,
the cost of the myriad third-party licenses that the company has to purchase
to provide this end-to-end solution more than doubled compared to a year
ago and is eating heavily into the bottom line.
Look
for J.D. Edwards' marketing and market awareness creation to be much more
aggressive. J.D. Edward's latest, more vigorous posture and marketing
initiatives seem to be going in the right direction. Also, to allay recent
negative publicity, the company must continue to convey a message that
assures the market and its customers that it will remain viable. It is
also needless to say that the execution, particularly the service & support
will have to be flawless, and the company should make every effort to
beef up its recently dwindled consulting force.
User
Recommendations
Potential and current J.D. Edwards users can be assured about its viability
and the future. The company remains a Tier 1 vendor and will be around
for a significant time to come. More important will be how well its global
sales and service force, can demonstrate the touted collaboration benefits
to the prospect or customer.
Due
diligence should always be paid to satisfying your unique requirements
as derived from your unique e-business strategy. While selecting a strategic
software partner is a challenging and risky undertaking, the good news
is that there is a myriad of companies competing for your dollars. Nonetheless,
one would be hard pressed to justify not including J.D. Edwards on at
least an initial long list of vendors in a global enterprise applications
selection. The company's offerings and value proposition are attractive
at first sight.
More
comprehensive recommendations for both current and potential J.D. Edwards'
users can be found in J.D.
Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower?
Part 2: Evaluating J.D. Edwards.