Event
Summary
On May 30, QAD Inc. (NASDAQ:QADI), a provider of enterprise
applications for manufacturing and distributing organizations, reported
revenue of $51.3 million for the first quarter of fiscal 2002 ended April
30, 2001, almost flat compared with $51.6 million a year ago (See Figure
1). The license revenue of $15.1 million was also flat compared to a year
ago. The net loss of $1.7 million, however, declined significantly compared
with a net loss of $8.8 million in the first quarter of fiscal year 2001.
The company attributes it to achieving a higher gross margin of 56% in
Q1 2002, compared to 49% in Q1 2001. This improvement was primarily due
to a more favorable mix of revenue from internally developed product,
thereby reducing royalties payable to third parties.
Figure
1.
In
addition, the company's previously announced cost containment and restructuring
programs contributed significantly to the year-over-year improvement in
financial performance, with operating expenses for the first quarter coming
in 13% lower than year-ago levels.
"While
QAD, along with other software vendors, has been affected by the current
slowdown in corporate IT spending, we nevertheless achieved stable revenue
in what is seasonally a soft quarter," said Karl Lopker, QAD's chief executive
officer. "We were also pleased that we generated positive cash flow of
approximately $7 million from operations in the quarter, reflecting the
health and efficiency of our business model in such a challenging business
environment. Though our near-term outlook remains cautious, we are enthusiastic
about our longer-term prospects based on the company's product positioning
and substantial installed base. At last week's 10th annual Explore
users' conference in San Antonio, we received positive feedback on all
QAD applications: MFG/PRO eB, our enterprise product suite; QAD
eQ, our private enterprise exchange product; and QAD Supply
Visualization, our collaborative manufacturing product."
Customers
witnessed a live on-stage demonstration of QAD eQ 3.0, QAD Supply Visualization
and MFG/PRO eB. The demonstration was conducted live over the Internet
presenting how all the products fit together in a seamless environment
to help manufacturing companies improve their productivity. At Explore,
QAD also unveiled its private enterprise exchange strategy, which helps
manufacturers efficiently drive collaborative commerce across the value
chain. Private enterprise exchanges could give manufacturers the ability
to automate supply purchases and collaborate in real time with trusted
suppliers without opening up sensitive information to unwanted eyes. While
many exchange strategies focus on indirect procurement, the company cites
that QAD eQ acts as the order hub for Sell-Side, Buy-Side and Replenishment
applications.
Other
major accomplishments during the quarter include:
- General
release of QAD Supply Visualization.
- General
release of QAD eB Desktop, a new HTML user interface for MFG/PRO eB
and MFG/PRO 9.0 product releases.
- General
release of QAD eQ 3.0.
Market
Impact
While
there is no reason for a great exuberance, there may be a reason for cautious
contentment. The array of hefty losses seems to have been stemmed. The
flat license revenue in an economic downturn compared to fact that other
mid-market ERP vendors lost market share, combined with an aggressive
offensive from bigger vendors looks pleasing. Even more, the company has
concurrently delivered products that should keep it abreast with ever
increasing market requirements. During the last two years, QAD has heavily
invested in the new initiatives to target the collaborative e-Business
sphere with the above mentioned product releases.
QAD
has thereby created a notable e-Business vision that might appeal primarily
to its mid-market user base. The company has shifted its focus from being
a mere ERP vendor dedicated to the industrial mid-market to fully leveraging
the Internet in the applications it provides to manufacturers and to distributors
to link their back-office systems to those of their business partners
via private trading exchanges.
QAD
eQ product, although in the immaturity stage, can be viable for some focused
areas such as direct materials procurement and/or replenishment and sales
order fulfillment. The eQ module contains four applications: Commerce
Relationship Management, Sell-Side, Buy-Side, and Replenishment. This
software provides the backbone to allow a manufacturer to establish a
private trading exchange among its suppliers and/or customers, with support
for XML messaging, Java, HTML, and no need for a client side of the software.
QAD eQ is also devised to support private Internet exchanges that are
connected to multiple sites, run on diverse ERP systems, and accommodate
a rules-based order management functionality.
QAD
Supply Visualization (SV), on the other hand, is a hosted application
that can be accessed via the new QAD MFGx.net manufacturing exchange through
browser and password only. The SV module comes pre-integrated with the
most recent versions of MFG/PRO, namely eB and 9.0 releases. It is devised
to provide real-time visibility of inventory and order status to users
through QAD's Poller software. From MFGx.net, users that are not necessarily
the MFG/PRO users can download the software, which updates the system
at certain time intervals by replicating data from the QAD MFG/PRO database
and uploading it to SV.
The
openness and interconnectivity mantra of QAD's entire offering are generally
commendable, although they yet have to be demonstrated 'en masse' in practice.
While
its new e-Business modules have proved to be well received by its existing
MFG/PRO customer base, QAD still has to create greater market recognition
and additional revenue from beyond it. The bad publicity due to its financial
difficulties that has long been the impediment in that regard might be
alleviated soon. The combination of MFG/PRO, eQ, SV, and embedded point
solutions from its premier partners (IBM, Adexa, Robocom,
Access Commerce, etc.) might provide QAD with a product
set also suitable for larger, multinational corporations. Although QAD's
reliance on a number of partnerships to deliver extended-ERP functionality
may not be the preferable option for its target market - medium sized
manufacturing organizations that still prefer a single source provider
and single data model and solution architecture.
The
conundrum, for penetrating the higher-end of the market though, could
also lie in the fact that MFG/PRO is not at the forefront of natively
provided ERP functionality, particularly in terms of multi-national financials/consolidation,
project accounting/management, HR/payroll, etc. Without these in hand,
it is a tall order for any vendor to penetrate the corporate management
level competing against likes of Oracle, SAP and PeopleSoft.
The
production management remains MFG/PRO's strongest module, and, therefore,
QAD has often been implemented only in manufacturing divisions of large
global organizations that use a Tier 1 ERP product for corporate financials
and/or HR applications. There is thus even a challenge of fending off
the bigger vendors' attempt to sway the corporate executives to implement
their system corporate wide (or, at least, in as many divisions as possible)
given that these vendors might emulate QAD's deep manufacturing functionality
over a period of time.
User
Recommendations
While the dark clouds over QAD seem to scattered recently, the overcast
future still remains. The company has broadened its product lines and
seems to keep abreast of recent market trends though. Time only will tell
how well it will target the manufacturing and distribution mid-market
within its industries of focus (automotive, consumer products, electronics,
food & beverage, industrial products, and medical devices) and demonstrate
collaboration and private exchanges participations' benefits to the prospect
or customer, and even possibly expand beyond it. QAD MFG/PRO users should
position eQ and SV central to their e-Business strategies although being
informed about competitive products cannot hurt. Non-QAD users may benefit
from evaluating eQ and SV products for their collaborative needs.
More
comprehensive recommendations for both current and potential QAD's users
can be found in QAD's
Costly eTransition Continues and QAD
Explores E-Business While Not Abandoning ERP.