Enterprise Resource Planning Software Vendors at a Crossroads
Companies Must Capitalize on New Revenue Growth Opportunities, Says Report From Hambrecht & Quist
Presence and Strong Relationships Are Key Advantages for Vendors Entering New Markets, Say H&Q Analysts
SAN FRANCISCO, Feb. 9 /PRNewswire/ -- The following is being issued by Hambrecht & Quist, a member of the National Association of Securities Dealers, CRD number 940:
Enterprise Resource Planning (ERP) software companies, entering an era when 60% annual growth for market leaders has passed, are at a crossroads and driving to develop new sources of revenue growth, says a comprehensive new research report from Hambrecht & Quist (NYSE: HQ).
These companies, say analysts James M. Pickrel and Donald F. Fornes, have already realized much of the growth opportunity in selling core business application software to large manufacturers.
"While we continue to see substantial growth of opportunity within existing accounts," says their report, "the low-hanging fruit in this market is gone. As a result, vendors have identified rich growth opportunities by seeking to enter new application markets and new vertical industries already active with a diverse group of successful incumbent vendors. The outcome will depend on the ability of these companies to exploit their status as a technology backbone, on the relative attractiveness of the new markets, and on the ability of these companies to penetrate them."
"With valuations of these major software companies close to their historic lows, it's a great time for investors to re-evaluate this market," says Senior Analyst James Pickrel. "Despite the slowdown in growth, two-thirds of all companies surveyed by Information Week report that ERP applications represent their most strategic computing platform."
"At the crossroads, ERP vendors are targeting new markets such as next-generation supply chain and customer management applications, as well as new vertical markets and the middle market," says analyst Don Fornes. "However, success in these new markets is not a given and investors are challenged to identify those vendors capable of successfully navigating this inflection point in the ERP industry."
The H&Q report concludes that ERP vendors' advantage in seeking to penetrate new markets is largely based on sales and distribution strengths, rather than product offerings. Larger ERP vendors in particular have within their installed base established customer relationships based on delivery of service, support, thought leadership and partnership with major system integrators.
Analysts Pickrel and Fornes make the following points in evaluating the sector's new investment dynamics:
* With major advantages in sales and distribution, service capability, product development resources and industry support, strong ERP leaders will continue to grow, but at a slower pace. "SAP, PeopleSoft, and J.D. Edwards will likely be the most successful of the largest vendors in making the transition at the crossroads," say the authors
* New application markets such as customer and supply chain management, e-commerce, employee self-service and analytic applications represent major new growth opportunities.
* Vertical applications for non-manufacturing industries represent a multi-billion-dollar opportunity. "SAP and PeopleSoft are already executing well on established vertical application strategies," says the report. "But strong incumbents will be hard to dislodge."
* Mid-sized companies make up a distinct and attractive market opportunity. "However," say the authors, "major differences in sales, distribution, pricing and support requirements dictate that the large vendors adjust their marketing strategies before they can further penetrate this vast new audience."
* New pricing models are emerging. The report cites fixed price contracts, value-based pricing, customer-size pricing and bundling of third-party products and services. "We believe that these new pricing models could moderate revenue growth and reduce visibility in the near term," say the authors.
* The service-bureau approach to remote application hosting is reemerging. "This is not likely to drive substantial business over the next four to six quarters until this delivery model is proven in the mainstream market," say the analysts.
* Terms of competition are changing in a maturing ERP market. "The market," say the authors, "is evolving from feature-based competition toward new forms of differentiation, including the vendor's enterprise systems vision, organizational resources, and long-term leadership potential. Additionally, vendor relationships with influential systems integrators are increasingly playing a larger role in customer buying decisions."
* Y2K issues may delay some sales. "However," say the analysts, "we do not subscribe to the doomsday 'nuclear winter' view of the shifting Y2K dynamics. Given the long implementation lead times, many buying decisions for installations beyond the beginning of 2000 will be made beginning in the second quarter of 1999."
The report is available to H&Q clients through their sales representatives. The publicly-traded companies mentioned in the report include: Baan Company N.V. (ASE: BAAN; Nasdaq: BAANF); Computer Associates International, Inc. (NYSE: CA); Great Plains Software, Inc. (Nasdaq: GPSI); Intentia International (SSE: INTB); JBA Software (LSE: JBA); J.D. Edwards & Company (Nasdaq: JDEC); Made2Manage Systems Inc. (Nasdaq: MTMS); MAPICS, Inc. (Nasdaq: MAPX); Marcam Solutions, Inc. (Nasdaq: MRCM); Oracle Corporation (Nasdaq: ORCL); PeopleSoft, Inc. (Nasdaq: PSFT); Platinum Software Corporation (Nasdaq: PSQL); QAD Inc. (Nasdaq: QADI); Ross Systems, Inc. (Nasdaq: ROSS); SAP AG (NYSE: SAP); SCT (Nasdaq: SCTC); Symix Systems, Inc. (Nasdaq: SYMX) and System Software Associates (Nasdaq: SSAX).
Hambrecht & Quist is a leading underwriter of public equity, and a leader in merger and acquisition advisory and private equity services for growth companies in the technology, healthcare, services, and branded consumer sectors. H&Q has completed more than 380 equity offerings globally since 1995, raising more than $27 billion for emerging growth companies. H&Q's principal offices are in San Francisco, New York and Boston with additional offices in Europe, Asia and Southern California, and a strategic partnership in Israel. Its stock is traded on the NYSE, SYMBOL HQ. Its Web site is www.hamquist.com.
SOURCE Hambrecht & Quist Group
CO: Hambrecht & Quist Group
ST: California
IN: FIN
SU:
02/09/99 13:26 EST prnewswire.com
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