Event
Summary
On November 8, Symix Systems, Inc. (NASDAQ: SYMX) a leading mid-market
provider of business systems for manufacturers and distributors, announced
that a proposal to change its name to Frontstep, Inc. won overwhelming
support from shareholders at the company's annual meeting. The company
will, therefore, immediately begin operating as Frontstep, and its common
stock will be traded under the symbol "FSTP." The existing Symix sales
and services organization will continue to serve as the company's direct
channel to manufacturers and will operate as a subsidiary of Frontstep.
"We
have an exciting opportunity to advance the competitive position of our
customers by providing practical and pragmatic solutions that allow them
to buy, sell and collaborate over the Internet," said Stephen A. Sasser,
president and chief executive officer of Frontstep. "In today's connected
world, companies must have a strong outside game to be able to operate
at Internet speed with their customers, suppliers, distributors and trading
partners. Our comprehensive suite of e-business solutions, combined with
our experience in the mid-market, uniquely qualifies Frontstep to turn
the promise of the Internet into a reality for mid-sized companies. We
have reshaped the company around the e-business imperative, as reflected
by the products, services, partnerships and customer successes we've built
over the last year."
However,
the company's financial performance continues to deteriorate. On October
25, Symix announced financial results for the first fiscal quarter ended
September 30, 2000. The company reported a net loss of $3.5 million for
the quarter, compared to net income of $895,000 for the same period last
year. Total revenue for the quarter was $28.0 million, compared to $32.1
million for last year's comparable quarter (See Figure 1). Results for
the quarter include a $2.2 million, pre-tax, non-recurring charge.
Figure
1.
"As
expected, we incurred a loss in the first quarter as ERP revenues remained
sluggish and e-business revenues just started to ramp up," said Mr. Sasser.
"From an operational standpoint, we continue to make steady progress in
transforming ourselves into an e-business leader. Our e-business initiatives
are being enthusiastically received by industry analysts, the media, leading
e-business partners, a growing number of e-customers, and early adopters
in our large installed base. I am particularly pleased by the response
from our existing customers, who understand our direction and are excited
about the benefits for them."
In
July 2000, Symix announced several structural changes to reallocate resources
and intensify its focus on core e-business initiatives. These included
divesting of the company's FieldPro subsidiary, discontinuing operation
of the company's e-Mongoose subsidiary, consolidating product development
and establishing three distinct channels. Non-recurring pre-tax costs
incurred or accrued in the first fiscal quarter were $2.2 million. These
are in addition to the $3.0 million, pre-tax, in costs reported in the
previous fiscal quarter for this effort. The company does not anticipate
additional costs related to these activities.
Market
Impact
The
last 12 months have indisputably marked the period of possibly the most
dramatic business model change in the entire company's history. The name
change reflects the company's shift of focus from being a leading ERP
vendor dedicated to the industrial mid-market to fully leveraging the
Internet in the applications it provides to manufacturers, distributors
and trading exchanges - as well as the new channels, delivery methods
and pricing options the company is using to accelerate adoption of its
entire product portfolio. Through its other division, the brightwhite
services group, Frontstep plans to provide the design and deployment services
required by customers to plan, build, launch and advance an e-business
strategy. Therefore, Symix' traditional reliance on its direct sales and
undeveloped indirect channel, which has been a flaw in its otherwise successful
ERP mid-market strategy in the past, should be significantly mitigated.
We
believe the company has articulated an e-commerce vision that should have
an appeal to its mid-market users. In a nutshell, the mission is to deliver
tightly integrated traditional ERP systems (not confined to only Symix'
ones) and new e-Business components. The company's focus on the mid-market
in make-to-order (MTO) and assemble-to-order (ATO) discrete manufacturing
has not been changed, however. While Frontstep has been promoting the
concept of an integrated solution, including both ERP and e-Business components,
the company is also pursuing stand-alone sales of its e-Business offerings,
both to manufacturing companies using a different back-end system, and
(to a lesser degree) to organizations outside of the manufacturing industry.
The broad scope and flexibility of its product offering as well as the
size of the existing Symix customer base should provide Frontstep with
recurring revenue and possible profitability during the ongoing shaky
transition period.
Frontstep/Symix
had no choice but to extend its foothold in the coveted mid-market ERP
market segment and to fill the gaps and/or diversify its product portfolio.
We also endorse the company's plans of enhancing its core ERP product,
particularly in terms of vertical focus, and continued emphasis on integrating
eSyte e-Business components with other back-office systems. The
openness and interconnectivity are one of the most important tenets of
competitiveness within the enterprise applications market in the new Internet
economy.
Nevertheless,
the company faces some notable challenges. Symix' recent name change to
Frontstep will require a strong marketing initiative to inform potential
and existing clients about the company. Another challenge facing Frontstep
is figuring out how to facilitate adoption of e-business by the manufacturing
and distributing industry. Like many of its peers, the company has been
experiencing unpredictability in winning new deals, which has been reflected
in significantly declined license revenue and low traction of its e-business
products. Manufacturers and distributors have traditionally not been early
technology adopters, although they should benefit from e-business and
front office functionality as well. While Frontstep seems to have most
of the required components, it still has to articulate a solid e-business
value proposition for wary prospects.
It
has been a tough time for all of the mid-market ERP vendors, and Frontstep/Symix
is not an exception despite its name and image change. Furthermore, it
will have to expedite full integration of the newly released e-business
applications with a slew of its traditional back-office products if it
wishes to mine its large customer base.
User
Recommendations
Potential and current Frontstep/Symix users can be assured about the company's
viability and the leading position within its target market. The company
has broadened its product lines and seems to have responded to recent
market trends. More important will be how well it will manage the name
change and brand recognition, how well it will target the right e-business
issues for the manufacturing and distribution mid-market and demonstrate
benefits to the prospect or customer, and how it can increase its currently
low traction.
More
comprehensive recommendations for both current and potential Frontstep/Symix
users can be found in Symix
Systems Front-Steps Into Greener e-Commerce Pastures.