Hambrecht & Quist comments from yesterday.........
Company: Informix Corp.
Price: 7.91
Recommendation: BUY
Notes: a, b,f
Firm: Hambrecht & Quist
Department: Technology
Industry: Computer Software
Date: 3/16/99
Q1 Q2 Q3 Q4 FY
1998A 0.00 0.05 0.07 0.09 0.21
1999E 0.03 0.06 0.11 0.20 0.40
2000E 0.09 0.13 0.17 0.23 0.63
52-Week Range 4-14 ** Market Cap 1,447
Shares Out 182.9 ** Book Value/Shares $1.14
Cash/Shares $1.21 ** DSO's 79
LTM Revenue (M) $735.0 ** FY Revs 735.0
CY EPS 0.21 ** CY P/E 38
Market Opportunity and Product Roadmap Look Solid
We met with IFMX CEO Bob Finocchio and key managers yesterday to review the
business and product plans. In the wake of the ORCL numbers, Finocchio sees no
change in his outlook on the database market or spending intentions. Our
take-away from the meeting is that IFMX is in good shape to meet March numbers,
although the quarter is not done, and that the company is building an
increasingly compelling story in e-commerce, data warehousing and other
specialized database markets. At current levels, on a cash-adjusted market cap
of 1.5x 99 sales, we reiterate our BUY rating.
Summary. In a series of briefings yesterday, we met with senior Informix
managers for an update on the company, its market and its product plans for the
rest of the year. We came away with more confidence in the company's ability to
execute in the near term as well as its vision for evolving a long-term,
meaningful position in the enterprise software market. In summary, given the
company's expertise and technology leadership in handling large volumes of
complex data, significant new growth opportunities in e-commerce and data
warehousing should emerge as corporations continue to invest strategic IT
dollars in those application areas. Although the March quarter is not completed,
and management gave no specific guidance, our field checks to date, as well as
the general tone of management commentary, lead us to conclude that Informix is
on track to meet or exceed our March quarter forecast. Specifically, CEO Robert
Finocchio and CFO Howard Bain both sounded highly optimistic, with a measured
dose of realism, about the company's standing and prospects. Adjusted for cash,
the company's market value is now about 1.5 times our forecasted 1999 revenues.
Given a strong near-term and longer-term outlook and current valuation levels,
we reiterate our BUY rating on the stock at these levels.
Core Product Positioning and Planning Make Significant Progress. Over the
last year, one of the major shortcomings Informix needed to address was in the
area of core product marketing and product management. Recently, the company
hired David Appelbaum formerly a key Oracle product manager, as its new VP of
Product Marketing and Management. In our view, Appelbaum has added significant
clarity to the long-term direction of the company's key asset, its core database
product line. The new server roadmap emphasizes more specialized product
packages, bundled and tuned for specific needs in transaction processing, data
warehousing or Internet deployments. Key to these specialized products is
broader support for a federated database structure, whereby various specialized
servers can communicate and share data more seamlessly. In addition, support for
handling more specialized components and functions directly within the database,
a key feature added via DataBlade support from the Illustra acquisition, is
being further extended and adapted for specific usage styles. Two releases in
1999-Centaur for transaction systems, including e-commerce, and Yellowstone for
data warehousing-will provide the first examples of this product evolution.
Web Products and Positioning Emerge, Build On Existing Strengths. Two newly
launched business organizations are driving much of the more specialized
positioning and delivery of the core products into key markets. Wes Raffel,
formerly head of sales, is heading up the new e-commerce division, to be called
i.Informix. The primary goal of the division is to take previously available
service offerings for specific e-commerce requirements, turn them into products,
and offer bundles of specialized products, databases and services at fixed price
points for rapid delivery. One package has been delivered, and a second is about
to be launched.
Intranet authoring and management. The first, i.Reach, has been available since
January and offers a complete package for authoring and managing corporate
intranet sites in a format simple enough for the content owners to use
themselves. Thus, the entire process of creating Web pages and associated
content files, getting approval, publishing, updating and retiring information
can be handled by product managers, marketing staff or other business people
without IT intervention. The importance for timely delivery of accurate
information within companies is becoming increasingly significant. The product
can be delivered and installed in less than 8 weeks, and the bundle is priced
at $200,000 for a 2-cpu server. We believe the company has seen strong initial
success with this bundle, with wins at Nike and market leading firms in the
automotive, telco, insurance and cosmetic markets.
E-commerce. The second i.Informix divisional offering, code-named "Bazaar" and
due for June quarter release, is positioned as a full e-commerce solution, with
a focus on targeted merchandising, scalable transaction management, and
sophisticated data analysis. With Bazaar, Informix is targeting companies who
have tried various approaches through differentiation in e-commerce, but have
failed due to an inability to handle complexity, data volumes and the rate of
change in information requirements. Given the Informix success in retail, telco
and areas of financial services, a natural fit within the current installed base
is likely to be found. Through an OEM arrangement with the Art Technology Group,
an MIT Media Lab spinout, Informix will bundle a range of application server,
storefront, shopping cart and catalog applications with its core database and
analytical engines. Bazaar will focus on enhancing the selling process for
e-commerce sites through enhanced personalization, flexible order flow
processing, and enhanced analytical power for staging, testing and analyzing a
wide range of marketing campaigns. We believe these features are all logical and
differentiated capabilities stemming from the strengths of the core Informix
engine on higher-end, parallel hardware platforms increasingly used for
e-commerce sites.
Data Warehouse Pieces Fitting Together Well. Leonard Palomino, head of the
newly formed data warehousing division, gave us an overview and progress report
on those initiatives. Although Informix had a series of initiatives in place to
round out its core engine capabilities for data warehousing, we believe that the
Red Brick acquisition further broadens the Informix products in a fully
complementary manner. The primary challenge for the company is to move from a
position of technology leadership to a more broadly recognized position of
market leadership. Leading technology analyst firms such as the Gartner Group
have long placed the Informix engine as the leader in enterprise-scale, open
systems warehouse support, challenging such platforms as Teradata and mainframe
DB2 from IBM in handling database size and complexity. Through arrangements with
various third-party vendors, Informix is moving to supplement its products with
the wide range of specialized tools needed to build, manage and use a large data
warehouse more effectively. With a total of about 1,500 data warehouse customers
today, and the addition of 300 more customers via Red Brick, we believe that
Informix has a solid basis for extending its presence in this market. For 1999,
the company also plans on extending its partner program to provide both more
applications and vertical market consulting and application templates.
Organization Still Undergoing Some Change. Despite some continuing
turnover, we believe that the Informix organization is in good shape. In the
field, the departure of the VP of North America sales has appeared to create
only modest disruption; we believe that a new VP, with experience at Oracle
among other places, will be named in the near term. Turnover in key development
and consulting areas appears to be relatively low. The primary organizational
objective of the company is to continue its transition from a one product,
deal-driven approach to a more specialized, focused and expertise-driven
consultative sales model. Broader channel development and support is also
necessary to accomplish this goal.
Outlook. We expect more visibility of the company's e-commerce plans in the
near-term, particularly centered around the launch of the Bazaar product
initiative during the June quarter. We also expect to see more aggressive
partner marketing, potentially with Sun and Hewlett-Packard around Java and
e-commerce initiatives, respectively. Finally, we expect to see continued
general business advertising to solidify the more focused, specialized market
positioning.
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