ERP Firms Take It to the Net
By Brian Graney (TMF Panic)
December 8, 1999
Several of the traditional enterprise resource planning (ERP) heavyweights have
been trading higher in recent days as investors seem to be willing to pay attention
to the companies again. Here's a list of the share price performances for five of the
largest ERP vendors since the start of the month:
SAP (NYSE: SAP) +25%
PeopleSoft (Nasdaq: PSFT) +12%
Oracle (Nasdaq: ORCL) +10%
Baan Co. (Nasdaq: BAANF) +8%
JD Edwards (Nasdaq: JDEC) -6%
The short-term results may not seem particularly spectacular, especially when
stacked up against what has happened to the market valuations of companies in
the white-hot business-to-business e-commerce area in recent months. But the
revival of the major ERP vendors is important from the standpoint that all of these
companies had lost anywhere between 50% and 80% of their previous 52-week
high market values in the fall of last year. As was suggested by Foolish reports at
the height of the ERP washout, anytime a basket of top industry players with
combined annual revenues of roughly $15 billion falls apart all at once, investors
should take notice.
Y2K spending issues by clients, economic problems in Asia and elsewhere, and
price cutting among the main rivals were cited as the main culprits behind the
massive revaluation of the ERP sector at the time. But hindsight has made
deciphering what was really going on last fall much clearer. In short, the major
ERP vendors were caught with their pants down as demand for enterprise
software shifted from traditional client/server applications that helped companies
manage the enterprise and its money to new Internet-enabled applications that
help companies grow the enterprise and make more money. As analysts as SG
Cowen described it in their research reports, the focus has shifted from
"optimizing choices" in the enterprise to "reducing friction" across markets.
As the largest animals in the ERP ecosystem, it's not surprising that the stocks of
the sector's big players were left by the wayside due to the companies' inability to
adjust quickly to change. Some of the smaller creatures operating in niche areas of
the ERP marketplace, despite being dragged down along with the big boys late
last year, were able to adapt at a much faster rate and have been rewarded for
their flexibility.
In supply-chain management (SCM), for instance, i2 Technologies (Nasdaq:
ITWO) has changed its business model substantially this year to fit the new
dotcom mold, realizing an almost fivefold gain in its share price in the process. To
be fair, Oracle has made significant changes, too, pushing into new areas such as
customer relationship management (CRM) and online procurement while also
highlighting its extensive links with many e-commerce firms through a highly
successful advertising campaign. It is up more than 170% year-to-date.
Slowly but surely, changes are also starting to occur within the other major ERP
players, and the market is starting to take notice. Last week, SAP said its
mySAP.com business portal initiative is providing a greater-than-expected initial
return and forecasted that half of its revenues next year will come from
Internet-based products. Today, CNET News.com reported that
Hewlett-Packard (NYSE: HWP) is planning to use mySAP.com as its
worldwide internal e-business platform backbone. Also this week, management
consulting firm Hewitt Associates signed up for PeopleSoft's Web-enabled Time
Entry system for time and billing procedures.
These minor advancements may seem like chicken scratch to investors who have
become accustomed to the daily billion-dollar valuation swings in hyper-growth
e-commerce procurement heroes like Commerce One (Nasdaq: CMRC) and
Ariba (Nasdaq: ARBA), but the transition of the ERP giants bears watching
nonetheless. As the movie "Jurassic Park" proved, even slow-to-adjust dinosaurs
can indeed make a comeback. |
