[Strength in software:]
From today's IBD, an article on why business software may actually benefit from the Asian crisis:
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There may be an economic crisis in Asia, but business software makers aren't exactly crying in their soup over it.
Instead, companies that produce and integrate business programs say there's a silver lining to the currency clouds overseas. Some say they feel few, if any, effects from the crisis. Others feel the pinch but say the difficulties will be short-lived. And even those who say the hardship is trying are being told it's more their imagination than anything else.
Consider the sentiment of Karl Newkirk, managing partner of the enterprise business solutions unit of Geneva-based Andersen Worldwide's Andersen Consulting unit. Andersen Consulting, a software integrator, has nearly 1,500 employees in Asia.
To Newkirk, the sky is not falling across the Pacific. In fact, he says he's having trouble keeping up.
''Our business is expanding rapidly in Asia, Australia, Japan and China,'' Newkirk said. ''If I could double my staff there by clicking my fingers, I would.''
How can that be? After all, isn't the crisis supposed to leave Asian nations cash-strapped and recession- bound? And hasn't the global shock wounded stock markets around the globe and caused U.S.-based multinational firms to post poor earnings?
Worse yet, since most U.S. business software makers sell their goods priced in dollars, prices of their products have nearly doubled in some countries.
None of that matters, business software makers say. The market is dominated by U.S. and European firms. There aren't any major Asian alternatives with a price advantage.
Further, Asian firms have to cut costs. Many look to accomplish that through software improvements.
''Economic crises are always a wake-up call for businesses,'' said Rick Allen, chief financial officer of J.D. Edwards & Co., which makes back- office business software. ''Software is often looked at as the way to facilitate needed changes and to be more competitive.''
Allen predicts that by next year, Asia will account for a larger slice of the Denver- based firm's sales than it does now. Asian customers accounted for 7% of J.D. Edwards' sales in the fourth quarter of '97, he says.
A case in point is Parametric Technology Corp., which makes software to speed up product design and manufacturing. The Waltham, Mass.-based company has been telling analysts it expects the Asia problems to be a boon for its business.
Irving, Texas-based I2 Technologies Inc., which makes software to streamline supply chains, said in December that it plans to expand its international sales. Currently, foreign sales account for 30% of the software company's business.
As Asian currencies lose value, those countries are likely to follow economic norms and export more manufactured goods. That'll force Asian manufacturers to run their plants at full capacity. Asian manufacturers then are forced to increase capacity, possibly by using software.
All this seems to contradict the warning issued by Oracle Corp. Redwood City, Calif.- based Oracle blamed Asia for problems when it reported net income of 19 cents a share for the second quarter ended Nov. 30. That was a 5.6% increase from the 18 cents a share reported a year ago.
But analysts expected Oracle's profits to rise to 23 cents a share, according to First Call Corp. The disappointing earnings spurred a 29% drop in its stock price the next day.
''While several factors impacted the quarterly license growth, the economic situation in Asia-Pacific clearly had a significant impact,'' Jeffrey Henley, Oracle's chief financial officer, said in a statement.
Critics say Oracle is using Asia as a scapegoat for other, deeper problems. One is that its products have fewer options than those made by competitors.
''Calling Asia a major problem this early is crazy,'' said Byron Miller, a software analyst with Cambridge, Mass.-based Giga Information Group. ''If Asia's really a problem, then why aren't all the (business software makers) falling apart?''
Still, Oracle doesn't see the Asian meltdown as an opportunity like the others. Nimish Mehta, senior vice president of Oracle's vertical applications, says 15% of Oracle's sales come from Asia and 55% from the U.S.
The crisis has caused many large customers, who had considered installing Oracle applications, to ''hold back and think about'' their investment, Mehta says.
One major fallout could center on the Year 2000 glitch, Mehta says. Companies are concerned that once the decade ends, computers will confuse the year 2000 with 1900. Many systems have been operating on a clock that uses only the last two digits of a year.
If the Asian crisis isn't settled in early '98, overseas companies may forgo major investments in software and hardware to take care of the problem. Instead, they could decide to repair older systems, Mehta says.
Systems integrators, the firms that install business software, are also seeing clients in Asia drag their feet, says Al Fisher, chairman of Chads Ford, Pa.-based Deloitte & Touche Consulting Group ICS.
''We've seen some companies that were ready to start work now hesitating,'' Fisher said. ''But I believe these delays will only last three to four months.''
Still, it's possible to make the sale if the integrator can present a business case, says Andersen's Newkirk.
In some cases, Andersen is convincing companies to move ahead with software projects by sharing the risk, Newkirk says. For instance, Andersen promises its clients a certain return on investment by a certain time.
If that goal is exceeded, Andersen claims part of the gain. If it falls short, Andersen's paycheck is cut by that amount.
''With software, we can often shorten the supply chain,'' Newkirk explained. ''So the project will actually free up working cash flow rather than consume it.''
Oracle wouldn't comment on whether it is offering deferred payment plans to Asian customers.
But J.D. Edwards is referring customers to third parties that will finance the business software. ''We do see this as a great opportunity,'' said Allen. ''But we're keeping on eye on receivables past due and checking the credit of prospects.'' >>>> |
