Bringing Mainframes into the Internet Age
By Mike Robbins
Caught up in the Internet sector's recent turmoil was a small Internet infrastructure company called JACADA (JCDA). The Israeli developer of "legacy-to-Web" applications, known until 1999 as Client/Server Technology, has seen its stock fall by 80% from a peak of more than $37 – despite the fact that its story has remained largely intact. JACADA shares have rebounded slightly and closed on July 14, 2000 at $12. The correction was not totally unwarranted; like most Internet companies, JACADA's revenue and earnings probably did not justify its once-lofty share price. But the stock might have taken more of a beating than it deserved – perhaps this was a case of the market failing to understand exactly what a small, lightly followed high-tech company is up to.
What JACADA sells, in the words of Rehan Syed of S.G. Cowen Securities, is the "shortest path to modernization" for companies with huge databases of information stored on mainframe computers. Using JACADA's Jacada for Java software, a company with a large legacy system can make its data Web-accessible in relatively short order, without the need to rewrite code. Command-based terminals quickly become intuitive point-and-click interfaces.
JACADA's customers tend to be big bricks-and-mortar companies and government agencies, which built-up most of the massive legacy systems, and not dot-coms. So the recent Internet shakeup is not likely to reduce JACADA's potential customer base. In fact, the ongoing broadband rollout makes it likely that bricks-and-mortar companies will look to the Internet for an increasing number of functions. And that might lead to increasing attention turned toward JACADA.
The legacy-to-Web market segment offers plenty of room for growth: Perhaps 70% of corporate data currently resides on mainframe computers, and the number of potential customers runs into the tens, or even hundreds, of thousands. Yet despite the sector's recent growth, the total number of companies employing legacy-to-Web technology still numbers only in the hundreds. Most of these companies could put the technology to greater use than they currently do, according to Lehman Brothers' Israel Hernandez, an opinion reflected in JACADA's high rate of repeat sales to existing customers. The company's current customer list includes such big names as NABISCO (NA), CATERPILLAR (CAT), ARCHER-DANIELS-MIDLAND (ADM), BANK OF AMERICA (BAC), SAKS (SKS), MCGRAW-HILL (MHP) and LOCKHEED MARTIN (LMT).
More than 90% of JACADA's revenue comes from Jacada for Java, its core product that was introduced back in 1997, but the company has been adding to its lineup recently. Jacada for Palm, which enables wireless palm device and mobile phone users to access mainframe data, is a new product aimed at the growing wireless computing market. Jacada Innovator, another new product, lets software developers trained in COBOL or other legacy programming languages design applications using those languages, then convert them to Java-compatible format. According to market analysis firm International Data Corp., there are more than two million programmers trained in COBOL in this country and only 500,000 trained in Java. JACADA hopes that companies will look to Innovator to overcome their information technology labor shortages.
The company does have some competition, and not all of it is from such small players as SEAGULL (SEAG), which trades on the Amsterdam Stock Exchange, and ClientSoft, a privately held U.S. company. IBM (IBM), NETMANAGE (NETM) and a couple of privately held companies, OpenConnect and AttachMate, and also participate in the Web-to-host market by offering something known as "screen-scraping" software.
Screen-scraping technology has a number of drawbacks compared with JACADA's software. Screen scraping is not scalable, so users can't convert hundreds of screens to Java format at once, as JACADA's customers can. And only JACADA lets developers actually work with the source code. Still, OpenConnect, IBM, AttachMate and NETMANAGE each control between 13% and 20% of the overall market, while JACADA has only 6%. Analysts expect JACADA's share to rise in the near future, as the company gets more aggressive in promoting the advantages of its products. In addition, its sales force recently climbed to 17 from 12 and is expected to reach 28 by year's end. |
