PSFT News:
November 2, 1998
PeopleSoft Is Looking Past
Cash Cow for a Sure Thing
By DON CLARK
Staff Reporter of THE WALL STREET JOURNAL
For a man whose net worth has declined $1.8 billion in six
months, PeopleSoft Inc. Chief Executive Officer Dave Duffield
seems pretty calm. The fatherly entrepreneur still talks as much
about keeping the company's own people happy as winning new
customers.
But change is in the air. As the big software company hosts
15,000 users in San Francisco Monday, PeopleSoft faces nagging
questions about the health of its industry and its plans. In one
unusual thrust, the Pleasanton, Calif., company plans to establish
an Internet-based network to link its customers with outside
information sources, a new external emphasis for a company built
on streamlining internal corporate processes.
More diversions may be necessary. PeopleSoft's third-quarter
results revealed a surprising slowdown in its current market, for
programs that automate nuts-and-bolts functions such as human
resources, finance and manufacturing. Some analysts, indeed,
suspect that the company's historic annual growth rates of 60% or
more are gone for good.
Mr. Duffield thinks the pause will be temporary, but concedes that
the evidence is ambiguous at the moment. "We are in a period of
uncertainty," he says.
Until recently, the software category known as enterprise resource
planning, or ERP, has been a sure thing. The market, whose
biggest supplier is Germany's SAP AG, has more than doubled in
size since 1995 and should hit $8.3 billion this year, predicts
International Data Corp.
A Charmed Life
PeopleSoft has led a particularly charmed life. It was formed in
1987 by Mr. Duffield, a 58-year-old former International Business
Machines Corp. salesman who had already formed two software
companies. His third brainstorm was to use personal computers,
and Microsoft Corp.'s Windows operating system in particular, to
offer easy-to-use programs for managing employee records and
benefits.
The company gradually added other functions related to areas like
finance and manufacturing. Green Mountain Coffee Inc., for
example, uses the software to help the Waterbury, Vt., company
centrally keep up-to-the-minute inventory data in five warehouses.
Charles Schwab & Co. uses a version of the software to give
workers in branch offices access to business records through the
Web.
Mr. Duffield, whose 20% PeopleSoft stake is currently worth
about $1.1 billion, originally predicted it would peak at 50
employees; the company's work force now stands at 6,500 and
1998 revenue is projected at $1.3 billion. Yet he still describes his
main job as preserving such core values as fun, civility and clean
company restrooms. ''Dave's Rules of Business Behavior," as he
calls his e-mailed commandments, include this advice: ''If you keep
up with your voice mail, people will actually think you're doing
work, even though you're probably out on the golf course.''
PeopleSoft's focus on customer service helped boost the
company's market share. But all ERP vendors' growth prospects
began to look shakier in the spring, amid signs that companies
were slowing purchases from all ERP vendors. PeopleSoft's
shares, which had been gradually sliding since April, took a 25%
one-day hit in early October when two analysts predicted a further
slowdown.
The stock skidded 23% on Oct. 21, in reaction to the third-quarter
earnings announcement. The company said net income jumped
54%, and total revenue rose 62%. But licensing revenues, software
sales excluding services, grew just 30%; Rick Sherlund, an analyst
at Goldman, Sachs & Co., says he had expected license growth of
46% to 53%.
Commission Method
Several big sales contracts that had been expected in the quarter
did not close, the company said. It also dispensed with an unusual
commission scheme that encouraged representatives to turn in
orders before the last week of a quarter. "It was clear that this was
not going to be a business-as-usual quarter," says Ronald Codd,
PeopleSoft's chief financial officer. "Things were going to go
down to the wire."
Mr. Codd suspects the chief culprit is unease about the economy,
causing corporations to trim plans to spend money on their
information infrastructure. In addition, sales momentum from the
Year 2000 bug may be winding down; it is now too late to install
new ERP systems to avoid the possibility of problems associated
with the date change, many analysts believe. Goldman's Mr.
Sherlund adds that PeopleSoft hasn't gained much momentum yet
in manufacturing software, and others note that SAP is cutting
prices aggressively in the human-resources field. Amid the
uncertainty, PeopleSoft is predicting revenue growth of 25% to
35% next year, compared with 60% in 1998.
Then what? Mr. Duffield thinks ERP will gain a new head of
steam. But PeopleSoft is hedging its bets by moving into newer
fields that could grow even faster. Most radical is the PeopleSoft
Business Network, the initiative being announced Monday.
Tapping the Internet
The goal is to give companies more direct use of information that
is now available on the Internet, but may require users to click
through endless Web pages and log-on screens. In the new model,
data from an office-supply distributor or an airline might be
directly inserted in PeopleSoft programs that handle purchasing or
travel expense forms.
PeopleSoft hopes to persuade merchants to pay to have sites
closely integrated with new Web software from the company,
which displays custom-tailored news, internal company messages
and other personalized features -- much the way some people use
so-called portal Internet sites such as Yahoo! Inc. "I like to think of
it as My PeopleSoft," says Dean Alms, vice president of strategy for
the new network.
Pricing and other details aren't yet set. "This is uncharted territory,"
says Clare Gillan, an analyst at International Data Corp. "It speaks
well to their vision, but they have to take care of their core
business."
Mr. Duffield, whose wife, brother, son, daughter and nephew
work at the company, talks more about preserving its low
turnover rate. After the latest quarter, he promised at a company
meeting to issue new stock options for rank-and-file workers
whose current options are worthless at current stock prices. "The
more employees think of it as a family the better I like it," he says.
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