Warehouse Software Gets Bigger Inventory Of Major Competitors
BY MURRAY COLEMAN
INVESTOR'S BUSINESS DAILY
Running a warehouse is dirty work.
But it's produced a clean profit for Manhattan Associates Inc. (MANH), which makes software that companies use to manage warehouses.
Analysts expect its string of 12 straight quarters of year-over-year earnings growth to continue in 2003. Company managers recently gave a forecast for coming quarters that some analysts say was the most optimistic they've heard from the company in years.
Yet for all the positive buzz, clouds could loom on the horizon for the company IBD rated the fifth best performing stock in the fourth quarter (for stocks that started the quarter with share prices of at least 12).
One worry: The stock is volatile. From a 52-week high of 40 in April, it fell to 12 in October. Then it rose to 31 in early December. It now trades near 23.
'Bound To Collide'
The potentially bigger problem, say analysts, is increased competition from larger companies.
Charging into Manhattan's market are Manugistics Group Inc. (MANU), I2 Technologies Inc. (ITWO) and SAP AG (SAP). All three make a wider variety of business software than Manhattan does. All are headed for a head-on collision with Manhattan.
"Market segments are consolidating," said Mike Dominy, an analyst with the Yankee Group, a research firm. "They're bound to collide at some point."
Manhattan is king of software that automates warehouse management. But that's a relatively small niche. Analysts peg total yearly sales at $1.6 billion. Creating software to help companies schedule production and forecast operating costs is a much broader market. Manhattan isn't yet in these markets, though SAP, Manugistics and others are.
In the last few years these companies have been expanding. Now, say analysts, they're getting a foothold with customers interested in having their computers do more than forecast. These applications include warehouse management.
Riding The Rails
"The SAPs of the world are gearing up to help their customers execute on those computer-generated forecasts," said Dominy. "That includes everything from running a warehouse to managing a distribution system with trucks and airplanes."
Manhattan, though, isn't sitting still. Last month it bought Logistics.com. That gives Manhattan top-notch software to help trucking and rail companies handle routing and planning, says CIBC World Markets analyst Brad Reback.
This moves Manhattan beyond warehouse management, he says.
"Now they're helping carriers decide which distribution systems are best, and how to use them to make the most money," Reback said.
Manhattan still lags in offering software that helps customers do more forecasting and managing of their supply chain, say analysts.
"They're caught in a little bit of a Catch-22," said Robin Roberts, a Stephens Inc. analyst. "They've got enough products to satisfy their current customer base. But as Manhattan deals with larger corporate users, they're going to need to offer more sophisticated systems."
For now, Manhattan targets midsize corporate customers. But big companies such as SAP are moving down to focus more on smaller companies.
"So to maintain its growth, Manhattan's got to move further upstream," Roberts said.
The question investors should ask, say analysts, is how fast Manhattan will expand.
"There's no doubt Manhattan's managers have their sights set on becoming the dominant player in the entire supply chain management market," said Roberts. "But they're going to have to do it by partnering or making more acquisitions."
Atlanta-based Manhattan had, in fact, partnered with Manugistics to provide certain transportation management software. "But Logisitics.com is a big competitor of Manugistics," said analyst Dominy. "It's going to be interesting to see what happens with that relationship."
Also, Manhattan must broaden its products to run on servers and smaller computers. Today its top products run only on mainframes.
Has Cash For Acquisitions
A spokesman said Manhattan wouldn't make an executive available to comment for this article before releasing year-end results in early February.
When it makes that report, analysts say, they'll be looking for more hints that Manhattan's ready to diversify. With no debt and $130 million in cash, says Reback, Manhattan's in a position to expand.
Getting Logistics.com already doubles Manhattan's potential, says Roberts.
She estimates the transportation management software market is about the same size as warehouse management.
If Manhattan can add more planning and collaborative software applications, says Roberts, its investors won't have many long-term concerns.
She sees plenty of room for it as well as SAP, Manugistics and I2 in the overall supply chain software field.
Dominy agrees. But he and Roberts worry that the company might play too conservatively.
"Manhattan wants to make sure demand warrants a broadening of their product lines," said Roberts. "But it can't wait too long, now that SAP and some other big players are moving in their direction." |
