JDA Software recently reported both its fourth quarter and full 2010 financial results, and the results imply both good and not-so-good implications from the recent acquisition of i2 Technologies.

The headlines of JDA’s 2010 financial performance included a 60 percent increase in total revenues to $617.2 million. Software license revenues in the fourth quarter increased to near 33 percent. However, JDA also incurred a 32 percent reduction in operating income and cash flow from operations, no doubt brought on by unplanned expenses related to the i2 acquisition. Deal sizes increased, with the average deal size climbing to $601,000.

These results also provide further quantitative evidence of the impact of the acquisition of i2 Technologies that was consummated in January of 2010.

The good news is that the acquisition is contributing rather positively to JDA results, amounting to an estimated 40 percent of revenues during the calendar year.  Readers may recall that when the first i2 deal was announced in 2008, JDA indicated that its plans for i2 included a software sales model reflected as a “CD replication”, meaning that potential customers would receive standard, un-customized software.  That was rather significant at the time, since i2 was known for its industry-centric innovation in supply chain technology, and was quickly transitioning to a customized software and service provider with some rather significant customers.  It seemed during the second and successful attempt in November 2009, JDA became more grounded in the reality of i2’s software business model.  The quantitative evidence, we believe, is reflected in both maintenance and consulting services revenues.  During Q4, maintenance revenues increased by 37 percent, and consulting revenues increased by an eye-popping 98 percent, no doubt brought about by the influence of i2’s installed base.

In the not so good category, JDA inherited the i2 lawsuit involving the alleged failed implementation at Dillard’s Department Stores, where a Texas jury awarded Dillard’s $246 million in damages in back in June.  There is also another patent related lawsuit involving Oracle. During Q4, JDA incurred $14 million in ongoing legal costs, and has now boosted its 2011 reserve for a possible settlement to $19 million, from a previous $5 million. The company also indicates that both ongoing litigations are expected to incur a further $10 million in ongoing legal expenses.

In essence, the i2 acquisition has brought a double-edged sword and it seems clear that JDA management wants to more forward with the positive, and quickly shed the litigation history it has inherited.

As was noted in a previous commentary at the time of JDA’s acquisition of i2, existing or prospective customers of JDA or i2 should insist on hearing plans for continued software integration, innovation and product development plans.

JDA has some hurdles to overcome in increasing profitability and insuring that ongoing litigation expenses are minimized.  There are very aggressive business plans in-place for 2001, including a goal to increase software revenues in a range of 32 to 45 percent.  That implies that JDA sales teams will be very busy knocking on doors, and readers should be prepared to ask the right questions.

Readers, share the highlights of some of your recent experiences with JDA in the Comments section related to this posting.

Bob Ferrari

Last week, we called attention to a Business Week article that noted that business changes occurring in high tech and possibly other industry supply chains.  Supply Chain Matters commented that traditional planning based on historic trending, forecasting and traditionally longer planning cycles may not be sufficient to plan supply chain needs in the ‘new normal’ of business recovery.

Certain Oracle customers have already recognized this need, and Oracle has responded by announcing today the general availability of the Oracle Rapid Planning.

Interesting enough, this application sits on top of Oracle’s or other existing supply chain applications allowing planners to respond quickly to changes that may be required across the supply chain. 

I was briefed on Friday by Oracle executives Roger Goossens and John Bermudez last week about the features of this new application.  They indicated that feedback provided from an Oracle supply chain customer council indicated the need to respond to events that occur within inter-planning cycles, where the need for immediate answers to business opportunities or business change becomes critical.  An example would be if a customer wants to move-up and existing order or a new prospective customer wants to place an opportunistic order for goods.

The basis of this application is to snapshot the entire planning database at any given point in time, store that information in a totally memory resident architecture, and be able to run super-fast simulations of a planning scenario.  The application itself is stand-alone, and can be utilized in either an Oracle, or other ERP or APS environment, for instance SAP.  The technology leverages Oracle’s latest Fusion middleware which comes bundled in the licensing of the application. Software deployment is flexible, either from a traditional behind the firewall licensed version, or hosted options. The user interface also takes advantage of Oracle’s latest simplified, spreadsheet-like user and graphical interfaces. Another interesting note for this application is that it leverages simulation capabilities from Demantra’s sales and operations planning (S&OP) technology.

This application may be especially of interest to Oracle’s former JD Edwards’s customers with older versions of supply chain planning that may want to take advantage of Oracle’s newer planning technology without having to take the drink of Oracle’s full suite of supply chain applications, including templates for supply review, allocation decisions or capacity review.

Oracle was somewhat vague on the pricing aspects of the overall application except to indicate that the pricing is based on Oracle’s current pricing model that pegs size of the organization or supply chain as a reference.  Current customer references are limited to existing beta customers, and may increase over time.  At Oracle’s recent user’s conference, one customer who indicated use of this application was Amway.

As industry supply chains enter post recession recovery, the need for more rapid, event-driven planning will become more apparent.  For that alone, Oracle’s timing on the release of rapid planning is opportunistic.  How attractive this application becomes will be based on Oracle’s customer education and pricing of Rapid Planning.

 Bob Ferrari

Disclaimer: This author has received no compensation or consideration for neither authoring nor publishing this blog posting.

Nearly one year after a similar attempt, JDA Software Group announced today that it has once again signed a definitive agreement to acquire i2 Technologies. 

When I first read the news, my mind jumped to recall those latest Southwest Airlines ads that exclaim: It’s On, It’s Really On! 

You just gotta love the supply chain software industry.

Supply Chain Matters readers may note our previous commentary last August regarding the last acquisition event, when i2 broke off the proposed marriage.  At the time, JDA had difficulty securing attractive financing in a very turbulent lending market that was in meltdown.  The investors and management of i2 at the end, also decided it was in their best interests to move on, pocketing a hefty $20 million termination fee from JDA.

Interesting enough, today’s announcement indicates an acquisition value of $396 million, about $50 million higher than the previous episode, but represents less than a 10% premium over yesterday’s i2 closing stock price.   A lot has changed in such a short period. For one, i2 has boosted its balance sheet and cash positions, building on the company’s previous positive $80 million litigation settlement with SAP.  Rigorous cost control has led to a generation of over $42 million of cash from ongoing operations.

One now gets the sense that both management teams want to insure that this latest marriage will have all likelihood of closing.  The terms of the transaction call for two different financing alternatives, one intended, and one a back-up alternative.  Since roughly 79% of the acquisition monies must be financed, it seems that much of this round of acquisition negotiations were clearly focused on insuring that the transaction will not be inhibited by financing.  Both financing arrangements call for up-front cash for existing i2 shareholders, which should make i2 employees more supportive of this deal than last time.  In either financial alternative, owners of i2′s convertible preferred stock stand to receive $1100 per share in cash, a handsome reward for holding out. The Board of Directors for each company have given approval to the transaction.

In the briefing call, JDA senior management noted that the acquisition would be revenue accretive as early as 2010, and JDA has already identified up to $20 million in cost synergies. They also pointed to the combined total of 6000 global customers, which will no doubt provide an attractive maintenance annuity revenue stream in the coming years.

Since this is a blog dedicated to supply chain strategy and information technology developments, I will focus remaining comments on the implications of this acquisition.  They are pretty much similar to those we penned during the last episode.  Many questioned the lack of synergies among these two companies.  The obvious business strategy synergy, which was again stated by JDA’s CEO Hamish Brewer on the briefing call, was the marriage of JDA’s market strengths in retail and process industry planning technology, with i2′s solid strength in discrete manufacturing sectors.  But both business cultures remain different.  i2 has been concentrating more on supporting customer-specific, highly specialized supply chain process needs.  I2′s marketing boasts that 19 of AMR Research’s designated Top 25 supply chains utilize i2 software.  One could argue that this software is not necessarily what one would find in a standard CD. 

If you are an existing or prospective customer of i2, insist that you get briefed on the closing schedules, and long-term strategies of the combined companies, particularly support, continued innovation and product development. If you have both existing JDA and i2 applications, you should be especially interested in product innovation plans.

No doubt, other competing software providers will be knocking at your door, providing all forms of incentives to either convert platforms or seek other software services approaches.  While this may not be an ideal environment to consider conversion cost options, it may pay to listen and be open-minded. It obviously helps in future discussion with the combined company.

As for JDA and i2, love is lovelier the second time around!

 Bob Ferrari