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To: Lizzie Tudor who wrote (30456)	4/5/1999 11:09:00 PM
From: John Pitera	Respond to of 86076

Michele, I agree about shorting something in a declining sector. Even CPWR has really been abused the past 6 months, I do see that Itwo has a one year earnings growth of 350% and a 33 forward PE. But since they have decided to shoot the whole group , you are probably right to suggest that SEBl and ITWO are next. So now we know what Luc is doing during the day -vbg- CTXS with there WInFrame- thin client server is another high-flyer with a lofty PE. When MSFT suggested in 1997 that they would not renew the CTXS license and instead develop their own competing product CTXS went from a Nov high of 55 down to a Feb low of 9 1/2.....this is actually prices from then....I have not adjusted for subsequent splits....but I will show up proportionally the same on the charts. They may be as good of a short as Itwo. I assume you were doing your SCM work for Dell on a consulting basis? here is Q4 wrap up 1998 Final ERP Larger User Magic Quadrant K. Pond, B. Bond, A. Dailey 1998 has proven to be a volatile year for the ERP market, and its impact on ERP vendors will continue in 1999. We assess how vendors competing for larger deals are positioned in our Magic Quadrant. Core Topic Manufacturing -- ERP Vendor Selection ~ Business Applications Key Issues Which ERP vendors will survive the market consolidation during the next five years? Which ERP vendors will thrive after 2000? Strategic Planning Assumption 1999 ERP market license revenue growth rate will be less than 15 percent (0.8 probability). As 1998 draws to a close, we are seeing a level of vendor pain and market transition that has not occurred in more than a decade (see Note 1). Many vendors have had difficulty maintaining their growth rates and, in some cases, have suffered severe financial losses (see Figure 1). We believe enterprise resource planning (ERP) license revenue growth will continue to slow much as it did in the late 1980s and early 1990s, when the market was evolving from MRP II to ERP. 1998 license fee growth will be no more than 15 percent and possibility as low as 10 percent (0.7 probability). Vendors growing in the 30 percent to 50 percent range are doing so based on fast-growing service, not license revenue. Enterprises are increasingly more cautious when selecting new ERP applications, favoring stronger viability over closer functional fit. Our latest ERP Larger User Magic Quadrant reflects these substantial forces in the market consisting of enterprises greater than $250 million in annual revenue (see Figure 2). Note 1 Factors Contributing to Market Slowdown A number of factors are contributing to the loss of momentum within the Larger User ERP market segment. The most prominent are: To solve year 2000 problems, larger enterprises have already bought solutions or are fixing legacy systems The Asia/Pacific financial crisis has affected and will continue to affect most ERP vendors' international revenue "Saturation" is beginning to occur at the high end of the market (your point Michelle) The Leaders Quadrant: Baan has followed Oracle by departing the leaders quadrant, and is now positioned in the visionaries quadrant. Baan's poor 3Q98 reflected the execution challenges facing the company. Baan will pursue a more conservative retrenching strategy that will focus on its manufacturing roots. SAP is now the only vendor in the leaders quadrant. As R/3 progresses, SAP's "one-stop-shop" proposition will be more realistic for large enterprises. Even so, SAP will not escape license fee revenue growth decline by mid-1999. The Visionaries Quadrant: Similar to the leaders quadrant, the most notable change in the visionaries quadrant is the departure of vendors, specifically QAD and SSA (see below). Of those that remain, JBA's third-quarter growth of 43 percent overall demonstrates the company's sales execution is improving. However, JBA's progress on its NT and next-generation products remains behind key competitors like J.D. Edwards. PeopleSoft's gain of 22 new full ERP customers (i.e., those buying manufacturing, financial and distribution functionality) in 3Q98 is not dramatic, but it demonstrates the company is gaining momentum outside of financial and HR deals. In 1999, PeopleSoft will increase its full ERP business above market rates, mostly with North American-based enterprises with assemble-to-order manufacturing and service and distribution operation requirements. The Challengers Quadrant: This has seen little change in the last six months. Two vendors with mature, AS/400-based products - J.D. Edwards with World and Intentia with Movex - continue to experience solid growth. World-related revenue represents about 80 percent of J.D. Edwards' total revenue. Intentia announced Java-based Movex release 11, but general availability for non-AS/400 users will not occur until 2H99 (0.8 probability). The Niche Quadrant.: The addition of QAD and SSA to the list of niche player vendors reflects the challenges of competing in this market. QAD has been unable to achieve profitability, and its vision has been muddled (see Note 2). After two years of struggling, SSA has a new management team focusing on achieving profitability in 1999. But that focus has limited SSA's ability to build the channels and partnerships it will need for long-term success. Given the maturity of this market and the diversity of functionality needed to address large distribution and manufacturing enterprises, by 1Q00 the number of vendors appearing in the niche players quadrant of the Larger User ERP Magic Quadrant will increase by 40 percent (0.8 probability). Figure 1 ERP Vendor Performance Source: GartnerGroup Figure 2 ERP Larger User Magic Quadrant Source: GartnerGroup Note 2 QAD's Challenges QAD has been focusing more on its technologically advanced On/Q product, which appeals more to larger enterprises with many sites. This focus has been at the expense of the functionally rich, cost-effective value proposition of its Mfg/Pro product that brought it success in the midmarket. Coupled with poor sales execution, these mixed messages have hurt QAD in the market. Bottom Line: In 1998, sales to larger enterprises slowed as our forecast - that the year-2000-based buying spree by these enterprises would end - came true. As the market continues to mature, vendors other than "the big five" that will compete successfully will be those with extended domain expertise from both a functional and service perspective in specific vertical segments and a technical architecture that supports enterprise growth and change. Niche players will be most vulnerable to the continued market slowdown while vendors with strong service models are better positioned to survive through 2003. Enterprises should continue to heavily weigh a vendor's financial viability in their long-term ERP strategy. However, they should consider not only the larger vendors, but also should continually evaluate those that increasingly focus on the enterprises' industry. Enterprises selecting ERP products to address year 2000 issues should plan to be noncompliant on 1 Jan 2000, and should set up contingencies accordingly.