INVESTMENT IDEAS
The reason investors have dumped some ERP companies is no mystery. The rationalization: Enterprise resource planning software - apps that help integrate all the various pieces of a business, from sales and customer support to raw materials procurement - is paid for out of a company's IT budget and can take months, even years, to implement. Since this year's IT budgets were committed to fixing the Y2K problem, it was easy for corporations to put off buying and installing ERP solutions. Consequently, ERP vendors were expected to suffer revenue drops. Sell, sell, sell. Look at the share prices for PeopleSoft (PSFT), J. D. Edwards (JDEC), and SAP Aktiengesellschaft (SAP). All have been trading off their 52-week highs.
Though this reasoning makes sense, the impact of Y2K masks an even deeper shift in the ERP field. It's migrating from client-server systems to Web-based ones, and not all ERP systems are ready for the change-over.
Given this double whammy, it's tempting to write off the ERPcos as investments, but they include some of the best-run software firms in the world, and contrary to some reports, opportunities abound for companies with a knack for reinvention.
For one thing, most ERP clients have completed their Y2K remediation and are resetting their IT budgets for 2000. For another, everyone wants to get the most out of their existing ERP systems, so they'll likely look first to their current ERP supplier to deliver new Net-integrated products before turning to Web-friendly ERP startups. For a prime example of how the established ERP players can adapt, look at System mySAP.com, announced in early May. This SAP software is designed to unite the internal processes of traditional ERP with external processes such as ecommerce.
As important as the new products, an untapped market beckons the ERPcos. Up to now, these firms have focused on Fortune 500 and manufacturing companies, leaving untouched the majority of businesses, which neither make the industrial A-list nor make "things" at all. Selling to these slower-adopting, midsize, "middle market" companies could be the key to compelling returns in the coming quarters.
PeopleSoft: www.peoplesoft.com.
J. D. Edwards: www.jdedwards.com.
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