Cognos resists Y2K induced
sales slump
Jill Vardy
Financial Post
OTTAWA - Cognos Inc. seems to have acquired a Teflon coating.
The software company has, so far at least, avoided the sales slump
induced by heavy corporate spending to fix the millennium bug. Its
Internet strategy is working, with Web-based software making up
almost half of sales in its core software product line in recent
months.
And the looming threat of Microsoft Corp. moving into Cognos'
market space has been mitigated by Cognos' efforts to make sure
Microsoft sees it as a partner, not a threat, to its own plans in the
business intelligence software market.
Cognos' apparent resistance to problems has analysts rating its
stock (CSN/TSE) a "buy," noting the general nervousness about
companies selling software to other firms has made the stock
relatively cheap. Cognos shares fell 95¢ yesterday to $35.80, but
are still well up from the $24 they were trading at last week, before
the company posted better-than-expected fourth-quarter results.
"When you keep in mind what Cognos is about, it's a pretty good
investment at these levels. It's certainly less risky than other
technology companies that trade at astronomical levels," said Michel
DeLavergne, technology analyst at Dlouhy Investments in Montreal,
who rates the stock a "buy."
Cognos reported income of $20.5-million (47¢ a share) (all figures
are in U.S. dollars) on revenue of $86.9-million in its fiscal fourth
quarter ended Feb. 28, up from profit of $17-million (38¢) on sales
of $70.7-million a year ago. The most recent earnings exclude
$3.3-million in writedowns from acquisitions. Analysts had expected
earnings for the quarter of about 44¢ a share.
In fiscal 1999, Cognos reported $1.34 a share in earnings on
$301.1-million in sales.
Cognos reassured investors and analysts that, unlike other software
firms that sell to large businesses, it has not seen demand for its
software hurt by the increased spending companies are doing to
prepare for Y2K. That jump in spending means companies are
spending less on software -- at least until after the millennium.
But Cognos executives say the market has never been better for its
business intelligence software used by companies to manage their
data on centralized servers or through the Internet.
"Companies have seen proof in their organizations of the value of
business intelligence. They're getting a better understanding ... and
higher level of confidence in the business," said Alan Rottenberg,
Cognos' senior vice-president of business intelligence. "We find
there is less of a requirement for us to explain why BI software is
important and more focus on explaining how Cognos can partner
with them."
That is how the company will maintain its strong growth rate
--expanding not only its roster of corporate customers, but its
involvement with each one, Mr. Rottenberg said. Once a firm has
seen how well BI software helps it organize data used by one
department, it's easier to see the merits in using it for other
departments, and even the whole organization.
The Internet makes that easier, he said, because the advantage of
ready access to detailed data can now be shared with employees
and partners outside the company's centralized server.
Donnie Moore, Cognos' chief financial officer, said this year will be
a key one his company and other BI suppliers. "We clearly believe
the enterprise opportunity is now, rather than two years from now.
So we're going to hire another 50 sales people this year in direct
response to what we think is the opportunity we're facing."
Increased use of business intelligence software across companies
has already meant larger sales for Cognos. It had more than 100
orders with values in excess of $100,000 during its fiscal fourth
quarter, including sales to companies such as General Electric,
Marriott, and United Airlines.
"This is a very attractive company that's shown stable growth and is
experiencing quite a surge in activity," said David Beck, technology
analyst at TD Securities in Toronto, who says the company is a
"buy" at current price levels. He said Cognos' strong position in the
market -- it is the top-ranking company in business intelligence --
and the breadth of its software should help it ride through the
pre-millennium spending slump in good shape.
The threat of Microsoft, meanwhile, remains distant. No one
expects the software giant to take the BI market by storm this year,
but it is clear Microsoft has identified this space as a priority. Its
new SQL Server 7 and Office 2000 software have much more BI
heft than previous versions.
Mr. Rottenberg said Microsoft's focus could, in fact, help Cognos.
"Our view is they will expand the market in terms of potential
customers, especially mid-sized and small companies where we
have played only in a minor way. So we believe this could be a
market expansion opportunity."
Just in case, though, Cognos will make sure its two flagship BI
products, Impromptu and PowerPlay, are loaded with
industrial-strength features not matched by Microsoft. And it has
aligned itself closely with Microsoft, developing software products
dedicated to Microsoft environments so that when that company's
customers need heavy-duty BI software it's often Cognos' that is
supplied.
COGNOS INC.
CEO: Renato Zambonini
Ticker: CSN
Listed: Toronto Stock Exchange
Head office: 3755 Riverside Drive, P.O. Box 9707,
Station T, Ottawa, Ontario.
K1G 4K9
Telephone: (613) 738-1440 |
