Event Summary
Although encouraging, it might also be quite ironic that, during these days of general lethargy of the market, the rare good pieces of news, in addition to some usual suspect' software giant's upbeat financial reports due to their certain large oligopolies' heritage, have been coming from some reformed traditional ERP vendors, which, not that long ago will have exemplified failed business models, giving even ammunition to some pundits to announce the obsolescence of ERP.
Those
vendors are:
-
Ross Systems
-
SSA Global Technologies
-
Geac
-
Baan
This
is a Part Two of a five-part note covering these four ERP vendors once considered
"Goners."
Part
One discussed Ross Systems and SSA Global Technologies.
Part
Three will cover the Market Impact.
Part
Four will outline the Challenges they face.
Part
Five will make User Recommendations.
Geac Computer Corporation
Although
not performing that convincingly like the previous two vendors, in December,
Geac Computer Corporation Limited (TSX: GAC), a large and also
until recently struggling Canadian supplier of enterprise management software,
has indicated it might have straightened itself up not only has it posted
a few stable and profitable quarters, but the company has also shown the intent
to move away from its all but failed business model of selling maintenance and
services for outdated applications.
Revenue
for Q2 2003 ended October 31, 2002 was Can$159.2 million, a 13% drop compared
to Can$182.9 million in the corresponding period in fiscal 2002 (see Figure
3). This decline in revenue is primarily attributable to lower maintenance and
professional services revenue from its Enterprise Application Systems
(EAS) division along with lower revenue from the Interealty
business in the real estate sector. On a regional basis, the Americas accounted
for 53.5% of consolidated revenue, while Europe accounted for 39.0% and Asia
for 7.5%. The Americas, Europe and Asia accounted for 56.8%, 36.1% and 7.1%,
respectively, of consolidated revenue in Q2 2002.
Figure
3.
More importantly, however, net income was Can$18.3 million, compared to Can$26.4 million a year ago. During the quarter, operating expenses were Can$62.1 million, compared to Can$56.5 million in the corresponding period last year. However, excluding net restructuring and other unusual items, operating expenses were reduced by Can$7.9 million, or by 11.1%, from $71.1 million in Q2 2002 to Can$63.2 million in Q2 2003. These cost savings were reportedly realized through reductions in product development, general & administrative, and sales & marketing expenses. Geac also experienced positive cash during the quarter provided by the operating activities of Can$0.9 million, an increase of Can$3.6 million over the same period last year. Consequently, with Q2 2003 results somewhat better than expected, Geac has increased its revenue guidance for fiscal 2003 to Can$620M from previously Can$600M.
The trend was confirmed with the March 5 announcement of Q3 2003 results. Revenue for the three months ended January 31, 2003, was Can$158.5 million, a 12% drop compared to Can$179.6 a year ago, although license revenue of Can$19.4 million was flat compared to Can$19.5 million a year ago. This decline in revenue is primarily due to an expected decline in the renewal of annual maintenance contracts. On a regional basis, the Americas accounted for 51.6% of consolidated revenue for the quarter, while Europe accounted for 41.5% and Asia 6.9%. The Americas, Europe and Asia accounted for 55.6%, 38.3% and 6.1% of consolidated revenue, respectively, in the corresponding quarter last year.
Again, net income increased by approximately Can$6.9 million or 58%, to Can$18.7 million, compared to Can$11.8 million in Q3 2002. Also, in the quarter, Geac reduced its cost of revenues by Can$17.2 million, or 20.3%, to Can$67.5 million from Can$84.7 million in Q3 2002. Net operating expenses decreased to Can$62.6 million in Q3 2003, compared to Can$67.6 million a year ago. These cost savings were reportedly realized through the continued implementation of Geac's program of managing costs to anticipated revenue. At January 31, 2003, cash and cash equivalents totaled Can$142.2 million, compared to Can$115.7 million at April 30, 2002.
During
2002, Geac began a phased strategic transformation to move away from its oppressive
dependence on maintenance and services revenue for legacy products (see Figure
4). To that end, the vendor has been making small, more digestible but strategic
acquisitions for newer products that would fit well with products from the EAS
division, including SmartStream and System21.
During the quarter, Geac announced two strategic acquisitions, Extensity
and EBC Informatique, which it hopes will enhance its business
performance management (BPM) solutions suite and expand its customer base, better
positioning it for long-term growth.
Figure
4.
Geac
recently certified that its mainframe-based financial and human resource (HR)
software applications (i.e., E Series and M Series)
have been integrated with Extensity's product suite, and the vendor appears
ready to move aggressively to sell Extensity into its existing customer base.
The recent upbeat performance by Geac has been duly covered in Geac
Hopes To See System21 Shine Again Like Aurora'.
Baan
Last
but not least, the vendor with perhaps the most unnerving rollercoaster ride
and which is still trying to return to its erstwhile short-lived glory, Baan,
the global provider of collaborative enterprise business solutions and a part
of the Production Management division of Invensys plc,
the global automation and controls group with headquarters in the UK, has lately
announced that it has continued capturing market momentum with significant new
customer wins in all geographies. For example, in the quarter ending September
30, Baan reportedly secured 67 new business agreements in North America and
31 in Latin America for its iBaan suite of Internet-enabled
solutions, which was also significantly rounded up during 2002. As for 2002
overall, Baan has reportedly signed agreements with more than 150 new customers,
with growing market presence across its target industries — electronics, automotive,
aerospace & defense, and industrial machinery and equipment, and process, despite
weak IT spending.
Concurrently
with stabilizing its finances, Baan believes the growth was fueled by its recent
strategic product broadening announcements including iBaan for Product
Lifecycle Management (iBaan PLM), iBaan for
Supply Chain Management (iBaan SCM), and iBaan
for Customer Relationship Management (iBaan CRM).
Baan received accolades in 2001 for the speedy although traumatic early recovery
process it went through after the Invensys acquisition in 2000. It straightened
and strengthened its own house despite the fact that the economy (and particularly
the manufacturing sector, which happens to be its sweet spot) was already in
a steep slide downhill (see Baan
Achieves A Speedy Recovery Despite The Tough Times).
2002
was a continuation of a very methodical turnaround being led by Baan's president,
Laurens van der Tang, as the Baan business strategy of providing industrial
companies in its core vertical industries with a comprehensive range of applications
focused on core business functions including ERP, CRM, SCM, and PLM has seemingly
been working (see Baan
Resurrects Multi-Dimensionally). Baan also claims that monthly surveys show
that customer satisfaction is up nearly 50% in over two years since the company
was acquired by Invensys, during which period, Baan also added ~400 first-time
customers. While that figure is not mind-blowing, it helps to reinforce the
company's viability and value proposition that perseveres even during these
adverse times.
Still, Baan's viability has again been marred lately first due its parent's financial hardships (over a year ago, Invensys was at the brink of a collapse due to the heavy debt load it had accumulated while acquiring a string of companies including Baan), and the indications that even the Baan division might have incurred losses during its last two quarters (after six consecutive positive quarters against its parent's dismal results).
The
main reason for Baan's recent losses will likely have been a hefty $150 million
investment in the next-generation platform that is envisioned to supplant its
older ERP predecessors Baan IV and iBaan Enterprise,
and which is code named Gemini and slated for delivery in September
2003. Although publicly traded, Invensys does not report its parts' P&L statements,
but our estimates of Baan revenues in 2002 would be nearing $350 million. Second,
during its recent revenue predictions on February 14, Invensys was cautious
on its second half of the year results, citing weak demand at Baan, but strengths
in other areas.
Mixed signals, however, continued with Baan's announcement at the end of February that it had finished 2002 with "sales that reinforced a corporate strategy focused on industrial enterprises with complex make, move, and service needs". Baan reportedly won business at 44 new customers during the quarter bringing the total number of new customers acquired in 2002 to 159. For the quarter ending December 31, Baan signed agreements with 24 new customers in the European region, 14 in the Americas, and six in the Asia-Pacific region.
In
order to stem any further speculations about its own and Baan future, Invensys
had long begun to restructure the software unit and installed stronger management.
During its event for the user group last fall, Invensys declared it had quite
restored its financial health (i.e., it has cut its debt in half albeit still
at a several $billion level) and that it was ready to execute a new strategic
vision with Baan as a prominent team player. Earlier, in February 2002, Invensys
announced its new strategic direction and Baan was positioned as a key component
of the newly formed Production Management Division. Since then,
Invensys has been integrating its three principle software companies Baan,
Wonderware and Avantis, under the leadership
of Laurens van der Tang, the president of Baan, and Joe Cowan, who was chief
operating officer of the combined organization until his recent departure to
EXE.
The vendor has last fall also reformed its indirect sales channel organization to be comprised of several companies that sell the entire iBaan suite of solutions to customers in a specific market-size category. The channel develops and implements sales programs that contribute to drive demand for Baan products, strategies, and solutions in six core industries — automotive, electronics, aerospace and defense, industrial machinery and equipment, logistics, and hybrid manufacturing. Baan continues its efforts to penetrate the market with its entire applications portfolio, mainly through indirect channels and outsourcing arrangements. To that end, Baan will strive to expand global distribution, sales, services and support capabilities, primarily by leveraging qualified indirect channels.
Prior to that, during 2001, the indirect channel was reevaluated and reduced to only tried-and-true strategic suppliers that can deliver the necessary customer satisfaction the new organization has been striving to achieve. Baan also pledged that customer satisfaction and support is the theme, since the alignment of the organization to enhance the customer issues has been propagated throughout the sales, technical, and client support divisions globally. A new account management feedback practice was implemented in order for the company to hear the voice of its client base and to continually improve the customer support process. Baan has also reorganized its sales force, with pre-sales consultants now being merged with the technical product architects.
This
concludes Part Two of a five-part note.
Part
One discussed Ross Systems and SSA Global Technologies.
Part
Three will discuss the Market Impact of the events described in Parts One and
Two.
Part
Four will cover the Challenges faced by these vendors.
Part
Five will make User Recommendations.