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October 26, 2005

An Eye on i2

Sarah Lacy

Now that Oracle has taken Siebel out of the race, my favorite dark horse to prove whether best-of-breed software can make a comeback is i2 Technologies. Hey! Stop laughing! I'm serious.

If you haven't paid attention to i2 lately, you might be surprised. When I first started covering enterprise software, i2 was usually only mentioned as an example of how much worse things could be for someone like Siebel. Like all once-thriving best of breed software companies, it had a big base of loyal installed customers and very good technology. But when it came to prospective customers, Wall Street--or the press for that matter--it had been all but left for dead.

And really, with good reason. Its market--supply chain management software--had declined for two years. i2's revenues had fallen for five. Like Siebel, it was getting beaten up by SAP and Oracle, as companies sought to do more business with fewer application vendors. Its stock had been delisted. It had a horrible balance sheet, with a big $300 million debt payment coming up. And don't forget the stain of an SEC investigation.

Then in came Mike McGrath, a well known name in the niche supply chain management world but a headscratcher to Wall Street. He proved his mettle pretty quick. As I detailed in this story for BusinessWeek Online, McGrath raised enough money to service i2's debt, got the stock relisted and slashed costs-- totally reorganizing the way the company sold software. All in a little more than a quarter.

McGrath is plain spoken and unafraid to make big changes fast. Appalled by the fact that every i2 employee still had a paid for cell phone, he cut them off. No business travel unless it could be billed to a customer. And those pricey VPs? Gone-- he cut 13% of the staff, mostly in upper management.

The company just reported its second quarter under McGrath (fiscal third quarter), and it missed revenues by $9 million, sending the stock down 34%. Note, it's still up 50% since McGrath took over. But still, quite a hit.

On one hand, that seems harsh for a guy who pretty much moved heaven and earth in his first three months on the job. But investors are right to question whether McGrath can help i2 grow revenues. It'll be a challenge in a slow growing market with formidable competition from Oracle and SAP, no doubt. And it'll take far more than one quarter. A fact McGrath may have recently grasped-- when I interviewed him back in August, he'd hoped to hand off the CEO reins to someone else before the Maine-native had to endure another hot Texas summer. But the company issued an announcement the day after the earnings miss saying he'd signed on for another year.

Phew. If i2 has a shot, it's with him. I give props to JMP Securities Analyst Pat Walravens for championing the company-- even after the earnings miss. It's the kind of real analysis Wall Street doesn't do enough of.

08:33 PM

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This is the type of company with the technology that a big guy like IBM or others could use to extend to new markets. What if a Microsoft or a Google got into this space?

Posted by: Jim at October 26, 2005 11:52 PM

"slow growing market with formidable competition from Oracle and SAP".

=>No need of integration, they have their own solution... why going after another vendor!

"McGrath is plain spoken and unafraid to make big changes fast"

=> He is facing NASTY political resistance!

"And those pricey VPs? Gone-- he cut 13% of the staff, mostly in upper management."

=> They are consulting for same company!

"The company just reported its second quarter under McGrath, and it missed revenues by $9 million, sending the stock down 34%. Note, it's still up 50% since McGrath took over. But still, quite a hit."

=> 34%????? From 24.88 to 11.27 isn't it something like 54.7%??????

You call yourself analyst? This is hilarious!!!!

Posted by: Pathetic analysis on i2 at October 27, 2005 05:25 AM

I whole heartedly support Sarah when she terms i2 as the Dark Horse in the Niche and Highly complex SCM field. having worked on both i2's SCP & SAP's APO products, I have reasons to believe that i2 demonstartes a far more comprehensive understanding of the SCM market and more importantly -its customers and given its renewed focus on the upcoming platforms like SOA, I am sure i2 will review its forunes in the time to come.

Posted by: Hemant at March 29, 2007 10:10 AM

My company has been using i2 for years and we're so disappointed with it. We're planning to purchase Oracle late this year. It's no wonder things are getting worse for i2.

Posted by: paula at April 4, 2007 04:25 PM


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