Ten Questions
1. Is anybody buying software?
Yes. But the battle this quarter is really for next year's budget line. People are
saying, "Show me what you have. Give me a price. I'll get it onto the budget, then
take delivery next January."
2. Is any revenue coming in today?
Certain industries are buying, and certain product areas are hot—or
at least not frigid. Industries include retail, some CPG, automotive,
and (in spots) other asset manufacturers, like aerospace and industrial
equipment. The common denominator: companies planning for the next
cycle. One good area is collaborative design, which seems to be
on the table at progressive companies.
3. Good news?
At least one PDM/collaboration vendor will hit its numbers this quarter, with good license
numbers and good ASPs. The
sales are of new products to existing customers.
4. Bad news?
Retek stopped by last week and managed to let fall in passing that
the multi-million dollar deals it brags about to us industry analysts
are in fact nothing more than small purchases of relatively contained
modules and promises to consider buying more when and if. No money
changes hands on these big deals. Even with an upturn in retail,
this seems to be a recipe for stagnation, since Retek's core customer
base (the 200 largest retailers) are always slow buyers, and in
the mid-market, there's plenty of good competition from STS and
JDA.
5. Executive positions open?
Manu needs a COO. (Manu announced this one at the earnings report.)
i2 is looking for a CEO. SAP is looking for someone to run Americas.
(People who were contacted told us about these two.) PTC's board
may well replace the current CEO. (Heard at a Harvard Business School
forum.)
6. Accounting fraud in the software industry?
Blue sky? Wet water? Some percentage of software companies succumbs
each year to the temptation to declare revenues before actual deliveries
occur. But I think the greater risk comes from "legitimate" practices
that used to be acceptable, but may not be any more. All you guys
thought it was great when PeopleSoft took R&D off its books and
capitalized the expenses via Momentum. What happens when we discover
that other companies are doing this sort of thing today. (Think
"partners" doing development in return for future considerations.)
What happens to the industry if any level of rigor whatsoever is
brought to the deferred revenue method of managing investor expectations?
7. Companies you like?
As companies, I like SAP and Ariba. They have a certain core solidity as companies.
They can
sustain themselves during the current downturn. And they are bringing good new
products to market. Relative to valuation, I like Ariba, Matrix One, and JD Edwards. Upside
potential? i2, but I haven't heard any good news about them this quarter.
8. Companies you don't like?
Commerce One. Manugistics.
9. Danger sign at a company?
Cost of sales going up, while consulting revenue stays steady. It means that they
are giving away consulting in order to keep companies happy.
10. Good sign at a company?
Consulting revenue going up. People like the product well enough that they're willing to pay the
company to teach them how to use it. When they've finished digesting,
they may even be willing to buy more. An even better sign would be that
consulting revenues are going up and margins on those revenues are high. That means
that the company is maturing, recognizing that consulting will always be a
higher component of revenue in a mature market and learning how to deliver
consulting profitably.
We're stepping back this week and doing several pieces on the overall
state of the market. Tomorrow, Brian Sommer goes to the swami. On
Wednesday, a report from our European correspondent on SAP's upgrade
issues.
We are about to complete an extensive and comprehensive review of the
strategic sourcing space. Vendors covered include the major ERP players,
Ariba, Commerce One, and niche vendors, such as B2E Markets and Perfect Commerce.
If you are interested in this space or would like a briefing, laying out
the issues and the top vendors, please let us know.
See also our other recent Short Takes.
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