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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Uncle Frank who started this subject	4/22/2002 11:29:04 AM
From: paul_philp	of 54805

A TALE OF TWO GORILLAS For those you who do not subscribe, a short piece I put together for the RTW weekly update. Paul The divergence in the fortunes of the two applications Gorillas of the late '90's, Siebel Systems and i2 Technologies has become stark. During the past two weeks i2 and Siebel have reported their results for the first quarter. Siebel continues to keep its head above water while i2 continues to sink fast. Siebel continues to gain market share while increasing the technological gap between itself and it's competitors. i2 continues to lose ground to both Manugistics and SAP. Tom Siebel remains one of the best CEO's in technology. Greg Brady resigned as i2 CEO for personal reasons and founder Sanjiv Sindhu has become CEO. It is an ominous sign when a company loses its CEO and the founding entrepreneur returns to that job. Siebel announced revenues for the first quarter were $477.8 million. This is a decrease of 2% from the previous quarter and a decrease of 19% from the first quarter of 2001. Net income for the quarter was $64.6 million, a decrease of 15% from Q1 2001. Siebel's guidance for Q2 was for flat revenue growth. The most optimistic note on the conference call came from Tom Siebel, a consistent pessimist for the past year, when he said, "He cannot see IT spending not increasing in the second half of the year". Tom Siebel is one of the few CEO's left with the credibility to meaningfully make this statement. Overall, the results for the quarter were slightly disappointing but Siebel's management team must be given full credit for producing very respectable profitability in a severe downturn. A 15% drop in revenue is never positive but it is acceptable given the significant revenue shortfalls by other enterprise technology vendors. Siebel continues to be the Gorilla of CRM applications and the company has an excellent management team. Siebel Systems is one of the few remaining blue chip technology companies. i2 announced revenues for the first quarter were $168 million. This is a decrease of 15% from the previous quarter and a staggering decrease of 54% from the same quarter in 2001. i2 revenues have dropped for 5 consecutive quarters. i2 lost $34.8 million in Q1, which represents a substantial improvement in net earnings from the previous four quarters. i2 has succeeded in cleaning up their balance sheet and controlling their operating expenses. i2 continues to struggle as their markets resist the large scale IT projects which once were i2's bread and butter. Unfortunately, i2 has not successfully retooled their product line to meet customer requirements for smaller, more focused solutions. Competitors Manugistics and SAP have used this product weakness to gain ground and share from i2. i2 has allowed their competitive position to weaken during the downturn and when IT spending increases i2 will face energetic competition. It is too soon to strip i2 of their Gorilla status but they are certainly on notice. In contrast to Siebel, i2 has one of the more unimpressive management teams in technology with the sudden departure of the CEO being a large warning sign.

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