Slowing growth among major enterprise application vendors would appear to indicate that customer attention is shifting away from traditional transaction-based systems to internet-based and customer-facing ones.
And while analysts have not lost interest in the older players just yet, it is the upstarts with their smart partnering initiatives that are starting to grab the headlines.
Dave Boulanger, leader of researcher AMR's SAP advisory practice, said: "The action is clearly away from ERP (enterprise resource planning). When I look forward I see three groupings: IBM, i2, Aspect and Ariba, SAP with CommerceOne, and Oracle. I don't know exactly where to put PeopleSoft at this time."
Ecommerce infrastructure providers Ariba and CommerceOne both turned in results that blew analysts' expectations away. Ariba saw turnover rise by 101 per cent to $80m, while CommerceOne managed a staggering 1392 per cent sales increase at $62.7m.
Although neither vendors are profitable yet, analysts believe they are on track to become the enterprise application vendors of tomorrow for big spending bricks and mortar customers.
However, AMR analyst Pierre Mitchell believes that the partnering issue is a potential minefield. "As cyclist Lance Armstrong mentioned this week in the Tour de France regarding forming alliances: 'Your best ally one day is your worst enemy the next day'," he said.
So while Ariba and CommerceOne seem to be doing just fine at this stage in the race, "it's a long haul with a lot of hard climbs", added Mitchell.
Supply chain application supplier i2 likewise appears to be on course to achieve the all-important $1bn revenue milestone, with its second quarter sales up by 84 per cent at $242m on the back of a savvy partnership strategy. Its product integration deals with IBM and Ariba are encouraging, as both suppliers have created recognisable brands in the expanding ecommerce world.
The company is also attempting to broaden its vertical market reach to embrace the consumer-packaged goods sector on top of its traditional high-tech and automotive strongholds. "Second quarter 2000 results show that i2 is morphing into a more comprehensive supplier of inter-enterprise software. Almost all the news is positive," said AMR.
Siebel is another one that cannot seem to put a foot wrong. It is currently market leader of the customer relationship management (CRM) market, and to prove the point upped its second quarter revenues by 119 per cent to $387m. Paul Wahl, Siebel's chief operating officer, recently complained that his main priority was finding enough suitably qualified salespeople to cope with demand.
However, the financial results of the traditional players are in sharp contrast to their younger cousins, although both SAP and PeopleSoft pretty much hit analysts' expectations. While the figures were creditable, bearing in mind the battering that the ERP sector has taken in the past year, they are hardly likely to set the world on fire, however.
SAP's revenue increased by 19 per cent to 1.5bn euros (£927m) on net income that fell by 18 per cent to 116m euros before a 95m euro charge due to payments for its Star share option programme. As a result, Brian Skiba, senior research director at analyst Lehman Brothers, was quietly optimistic. "I think [Wall Street] was relieved. We had been expecting the worst. The US growth is back. That's good news," he said.
SAP attributed the positive news to increased sales of its mySAP.com applications, which now make up 47 per cent of its total turnover. While this appears to be good news for future growth, it disguises the fact that the supplier is facing intense competition inside its user base from both Siebel and Ariba. One insider, who did not want to be named, said: "Ariba is the number one enemy. Mention it to management and it's like a red rag to a bull."
However, SAP's joint chairman Hasso Plattner said: "We have demonstrated our ability to change gear and turn around areas where we have shown signs of weakness."
While this may be so, some analysts believe SAP is not hitting its full potential. "It has some great technology sitting there that if only it could understand how to market it, it could make a seriously positive impact," said AMR's Boulanger.
A milestone for PeopleSoft
PeopleSoft, on the other hand, made a big deal out of beating Wall Street's profit estimates by 20 per cent, or about $2.6m, by generating income of $15.9m. This compared with losses of $542,000 for the same quarter last year. Craig Conway, the supplier's chief executive, said he regarded a 37 per cent increase in licence revenue to $109.8m as a "significant" milestone.
But behind the figures, things do not appear quite so rosy. PeopleSoft said its Vantive acquisition's CRM application suite was now its largest revenue earner, accounting for about 26 per cent of total licence sales.
Based on past filings to the US Securities and Exchange Commission, this means that sales of the company's traditional human resources and financial packages are virtually flat compared with a year ago, and even if Vantive's growth is taken into account, they are more than $38m less than two years ago.
Even so, Boulanger remains confident that the new internet architecture that forms the basis of PeopleSoft's applications will make a difference. "The analytics are a good differentiator and it's showing it's serious about being an internet company," he said.
However, such results reflect the fact that so-called traditional vendors are facing special difficulties in competing with the new boys in today's climate. Because they have much larger infrastructures, older products and hefty installed bases that they cannot afford to alienate, they are not able to move as quickly as their nimbler rivals.
The cloud that Baan's proposed acquisition by Invensys cast over the ERP market has also had an impact on industry confidence. Baan, at one time a $700m vendor with a seemingly bright future, warned last week that it expects to lose between $75 and $85m in its second quarter.
Sales are anticipated to plummet to no more than $80m compared with turnover of $106m in the first quarter of 2000 and $130m in the fourth quarter of 1999. Such figures are an example of how fast customers can desert vendors when trouble strikes.
But analyst sentiment is cautiously shifting back in favour of the traditional vendors, with expectations improving for the latter half of the year as investments in new technology start to kick in. Lehman Brothers' Skiba, for one, still rates SAP and PeopleSoft as 'outperform'.
So it appears that while these suppliers are not yet positioned to return to the dizzy growth rates of the mid-1990s, they are far from past it.
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