RE: SCM, B2B and ERP...
Mike wrote:
You'll remember that six months to a year ago I was unwilling to play a gorilla game in the supply-chain sector because I felt it had the greatest chance of all sectors of being subsumed by the ERP players. As time as marched on, I feel less and less that way.
Yes, I remember your comments and highly respect them. If there is one thing that we could all employ from time to time - it is more constructive caution as you showed in your thoughts about the SCM space. You weren't alone, and let me address that issue now.
You know that I certainly believe that SCM has established itself as a stand alone category. As I mentioned, I understood your concern about SCM and CRM being swallowed by ERP vendors. After all, it was Tom Kippola who shared the same concerns about SCM and CRM in 1998 when he was interviewed by the Fool. At that time, in 1998, it probably was the 'wise' stance to take. Perhaps, in retrospect, since the CRM and SCM games were so young at that time and it was a real time, real money game - Kippola was simply doing the right thing by showing caution as not only he as an author, but we as readers were learning a few real time games for the first time.
Regardless, since then - my thoughts, based on revenues alone, are i2 is indeed and has been the dominant player in the SCM space. It's one of my best performing investments to date and I will attempt to keep my emotions in check. Other investors closer to the actual algorithm technology that i2 uses would stand on their mount and provide you with plenty of sermons explaining exactly why that technology hurled i2 to the front during the tornado to make them dominate the space and left the others 'in the dust'. No point for me to get into that as playing a gorilla game would have early investors holding shares in all the players and consolidating as time moved on. I joined the SCM game in 1998 where revenues and comments were in i2's favor - so I only chose i2 as my single 'basket' source. I held shares of Oracle, so if ERP was going to swallow, I was covered so to speak.
Does anybody think Larry swallows? <ggg>
Manugistics as well as the ERP vendors that offer a SCM module solution certainly will continue to enjoy growth going forward. I believe I mentioned on this board that i2's management has guided analysts that while the 'hypergrowth' for the SCM space in the traditional sense is past, they see a solid annual growth rate of 40% going forward in the SCM space. As a growth investor, I can certainly settle for an annual rate of 40%. That's all well and good, but let me roll up my sleeves and mention a little bit more about what i2 is really all about and this entire 'B2B' thing which can really be confusing.
As we know, manufacturing SCM is not i2's only target market going forward. The software industry's largest acquisition to date of Aspect Development for $9.3 Billion by i2 tossed me for a loop at first. It sent me to the wood shed for some practicing. At least in music school, that's what we called the practice rooms. I spent so many hours locked in those practice rooms wood shedding my vocal technique, that it drove my friends and girlfriend nuts. Yet, it was an investment for my future that needed to be done. I had to do this with i2 once the acquisition was announced. I will say that this company is really executing well and positioning themselves for the future with strategic vision.
Allow me to share a post I wrote in response to another poster who was concerned about i2's share price drop during the general market reality check we went through in April.
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Q: Can someone give me some honest advice or comments about me buying at 167/share and the long term outlook of i2??
A: I wouldn't be selling those shares if I were you.
The mid-March merger announcement of i2 and Aspect will combine the strengths of i2's eBusiness solutions for enterprises and TradeMatrix.com for eMarketplace offering with Aspect's product content and decision support solutions for enterprises and eMarketplaces. The result is a comprehensive and deep offering targeting the collaborative and analytical segments of B2B eCommerce versus the core transaction segment contested by players such as Ariba, CommerceOne and Oracle.
In my opinion, the baby got thrown out with the bath water when Prudential's Doug Crook lumped i2 in with Ariba and CommerceOne last week in his downgrade.
i2 will populate its TradeMatrix.com offering with content from Aspect and SupplyBase, comprising information on 17 million parts and components and 100,000 suppliers. This content will be key in terms of enabling eCommerce on eMarketplaces powered by i2's TradeMatrix solution or other B2B eCommerce players.
No single company can dominate multi-enterprise design, procurement, eCommerce services, supplier collaboration, manufacturing, delivery fulfillment and customer care. i2 realizes this and hence the rationale behind the partnerships.
That's not to say there won't be a myriad of challenges going forward. This merger forms a core powerhouse that could become the most critical foundation of B2B.
BB
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We've got some serious gorilla games going on here. In the top tier procurement market - Ariba, Commerce One and Oracle stick out. Oracle wants to be one of those all solution providers like all the ERPs. Once again, the worry such as you had Mike - or the worries of Kippola back in 1998 that the ERP vendors could easily swallow other categories is being applied to this thing called 'B2B' as well. Yet, there are already specialized developments well under way with i2/Aspect being the main powerhouse developing for supply chain inbound and outbound. They are executing this very well and remaining as neutral as they can to all other players in many of the games developing. Plenty of alliances and value chain formation going on.
I'm not going to say that Oracle is not a threat, because the sheer size of Oracle is certainly a threat. Ellison will bark and bark loudly if he sees a bone worth fetching. B2B is a bone worth chasing. However, look what happened while all that barking was going on in the CRM space and in the SCM space. Siebel and i2 had very productive walks through the park and are headed to main street while Ellison is still in the park barking loudly trying to get as many nibbles on those bones as possible. I contend that the Ariba, Commerce One and Oracle procurement, transaction based B2B game is a real live, real money gorilla game. Likewise, the content delivery game is a real live, real money game going on.
I've chosen to invest in these companies (not Commerce One though). Ariba's balance sheet management is stunning to say the least. I provide a link below where you can study that information. Perhaps these do and perhaps don't fit into the context of other gorilla gamers' portfolios. For fun, I follow the workshop stock screen rankings every Friday at the Fool to see what companies make the Friday list. I will give the link below, but just glance this week at the companies we follow on this board:
fool.com
Keep in mind, these screens are mechanical investing screens and each screen has its own rules and theories behind it. It's really for traders as the longest term for any of the screens is 12 months. You will see i2 and Siebel appearing on many of the screens (as they have for weeks) as well as plenty of our favorites. On the right side of the link above, you will see a link entitled 'Screen Explanations' if you want to read about the theory behind each screen. Some are a monthly play, some are a 6 month play and some are a 12 month play. I'm not a trader, so I don't employ those strategies, but am always interested in what appears on the list.
Here's a link to a Fool's take on the balance sheet of i2 and a link to Ariba's very healthy balance sheet management as well. Both are worth the read in my opinion.
boards.fool.com
However, in terms of pure SCM niche leader, I think i2 is worth discussing. I know that it showed up in more portfolios this time around than last year when the survey was conducted. If we look at the last 4 quarters of i2's revenues, the total is $640.09 Million. That's below our CRM gorilla Siebel's past 4 quarters of $958.65 Million. However, if you add Aspect Development's revenues (merger with i2 to finish in June/July of this year) of $116.17 Million for the previous 4 quarters, the combined revenues should approach that magical $1 Billion point at some point in the future with their revenue growth rates. To be fair, in contrast of these niche players, Oracle's latest 4 quarter revenues are $9.7 Billion. Of course, due to sheer size, the y/y revenue growth rates of Siebel and i2 are much higher than Oracle's. No surprise there. I will stick to my thoughts that Oracle can't be the all solutions provider to everyone. Regardless, I own shares of Oracle as well as Ariba, i2, Siebel and Aspect.
You all know, that if I don't stop, I'll just keep typing away.
BB |
