.D. Edwards Is Latest ERP Developer To Issue Y2K-Related Warning
Dow Jones Online News, Monday, May 03, 1999 at 21:06
NEW YORK -(Dow Jones)- J.D. Edwards & Co., which develops enterprise
resource planning, or ERP, software for companies, Monday warned it will
report a surprise loss for its fiscal second quarter, citing slowdown in
demand as companies focus resources on fixing the year 2000 computer
problem.
J.D. Edwards (JDEC) said it expects to post a loss, excluding
accounting items, of more than $25 million on revenue of $215 million to
$235 million for the quarter ended April 30. The mean estimate of
analysts surveyed by First Call was for earnings, excluding items, of
five cents a share. In the year-ago quarter, J.D. Edwards had net income
of $12.3 million, or 11 cents a share.
The company, which expects to release results May 26, also cited
investments in product development, acquisition costs and the impact of
staff additions made in the first quarter.
Morgan Stanley Dean Witter analyst Chuck Phillips lowered its
investment rating on J.D. Edwards to "neutral" from "outperform," citing
weakness in the ERP sector. Phillips cut his fiscal 1999 earnings
estimate to 13 cents a share from 59 cents and reduced his fiscal 2000
earnings estimate to 22 cents from 74 cents a share.
While J.D. Edwards is "one of the stronger companies" in the ERP
sector, "the company has to manage through the downturn and return to
profitability by Q4," Phillips said.
J.D. Edwards is the latest business-software maker to get bit by the
year 2000 bug. Competitors PeopleSoft Corp. (PSFT), SAP AG (SAP) and
Oracle Corp. (ORCL) all have cited year 2000 turbulence.
"We had indicated last week that we felt a pre-announcement was
possible," said Andrew Roskill, an analyst with Warburg Dillon Read in
New York. "I don't think this reflects a J.D. Edwards-centric problem. I
think it's a macro issue and it's hit virtually every company in the
space."
In 1997 and 1998, a lot of companies purchased packaged ERP
applications to upgrade their systems and solve their year 2000 problem
at the same time, Roskill said. "We had a bit of an acceleration of
growth in those years, but typically these products take about 12 to 15
months to get up and running," Roskill said. By the fourth quarter of
1998, a new ERP-system purchase wouldn't help with the Y2K bug, he said.
Besides the ERP vendors, other business software makers have also
been hit by a combination of Y2K-derived spending changes and a shift
among customers to buying Internet software.
J.D. Edwards' shares had already slumped amid industry weakness, and
fell another 8.8% to $12.25 Monday
Despite its troubles, J.D. Edwards is well-positioned to ride out the
uncertainties in its market, with more than $500 million in cash and
investments, Roskill said. "I think there is going to be a recovery next
year, but the real question is what happens over the next two to three
quarters," he said. "To some extent we're all flying blind. The stock is
only appropriate for true long-term value investors," he said.
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