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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (6237)	3/7/1999 9:37:00 PM
From: Michael Burry	Read Replies (2) \| Respond to of 78516

Shane, Re: ERP crash and PSFT, SAP, ORCL Warning: long post The fact that ERP is down to the point that I get asked all the time about PSFT and SAP by people who know me to be a value, non-tech guy made PSFT interesting for me. I started out with a bullish bias thanks to my contrarian nature, but the more I explored the MMTM shell via the proxy and talking with analysts, the more I saw problems. Incyte, a biotech company I like, made a similar spin-off maneuver, but I don't think it had as desperate implications as the MMTM trick. I get this mainly from weighing the proxies, ERP consultant and analyst comments. PeopleSoft really has fallen behind on several significant next-gen apps/strategies thanks to a lackluster R&D effort, and it seems to me that MMTM is a much weaker shell than the typical biotech outfit. After the article one guy e-mailed me to report that the customers due PSFT's research in the industry-specific higher ed app because of all the bugs. PSFT's motive is clear - satisfy the average tech/PSFT shareholder enough to keep the share price from reflecting the true value, and hence stem any potential employee migration to Oracle or smaller, mid-market an niche competitors. PSFT's employees, by report, are its biggest asset at the current time, even more so than its installed base, which may not be "vertical" enough to act as a backbone to generate enough additional sales to continue growth near historical rates. As I see it, and as I posted on the Yahoo thread in vain, there are several issues that PSFT must resolve if it is to regain its wings: 1) proprietary PeopleTools; susceptible to standards if implemented; this is a familiar theme in tech which typically has not worked out well for those not simply leading but dominating the pertinent market 2) difficulty porting current PSFT products too far into the mid-market given current sales, support, design, and really no chance at the micro-market. A significant amount of the growth in ERP (of which you speak) will be in these two areas. 3) PeopleSoft is actually now #3 in ERP; Oracle has surpassed them. And PSFT software largely runs on Oracle databases; Oracle is simply vicious and PSFT knows that 4) PSFT has not been successful developing industry-specific products from the ground-up on its own, yet its future depends on this; management knows that it is heading into uncharted territory here and acknowledges as much 5) Despite perceptions of MSFT agreement, PSFT is behind in e-business relative to the two already ahead of it in the ERP market, and lags especially Oracle 6) Brain drain if the stock/prospects lag too long; PSFT has never had to deal with employee layoffs or a low stock price, and this introduces a new, challenging dynamic into PSFT's pool of talent. Here's an area where being in the Bay Area is really a double-edged sword. 7) Keeping up an R&D effort on par with Oracle and SAP. Oracle and SAP have a lot more revenues with which to leverage their research. This has been many a perpetual second-banana's dilemma. PSFT is half as expensive as SAP or Oracle on a ratio analysis. Still, one analyst with a buy on PSFT noted that it really should be cheaper, because of its lesser competitive position going forward, He had a buy on it because he felt traders would react to those ratios anyway. One bearish issue that may not be worthy but needs watching - the increased selling of shares by the Duffields of late. I agree with you. I'd prefer SAP or ORCL if they fall far enough. Knowing what I now know, wish I could have another shot at ORCL in the low 20's. Good investing, Mike