Updated from July 2
Shares of
i2 Technologiesand
Kana sank
Wednesday amid analyst downgrades after the software
makers warned of disappointing earnings and revenue a
day earlier, while
E.piphanyshares rose despites its
preannouncement.
Shares of i2 sank 18 cents, or 12%, to $1.32 in
recent trading. The supply-chain management software
maker's bad news also dragged down shares of
competitor
Manugistics, which
fell 97 cents, or 17%, to $4.73 in recent trading.
"I think basically people are looking at i2
numbers and saying supply chain is extremely weak
across the board," said Goldman Sachs analyst Chris
DeBiase, who downgraded i2 to market performer from
market outperformer. "They're shooting both of them
today."
Kana shares also dropped, falling $1.32, or 37.1%,
to $2.24 in recent trading. But E.piphany, another
customer relationship management software maker that
warned Tuesday, escaped the wrath of investors and
actually rose 16 cents, or 4.4%, to $3.76 in recent
trading.
UBS Warburg and A.G. Edwards downgraded their
ratings to sell on i2, which has suffered as tight IT
spending has led to a large drop in its deal sizes.
Standard & Poor's on Wednesday also lowered its
corporate credit rating on i2 to B from B+ and its
rating on $350 million in convertible notes to CCC+
from B-.
"We recommend investors sell the stock as we
question whether or not ITWO can find a sustainable
long-term business model," UBS Warburg analyst Ken
Carey said in a note. He cited the company's declining
maintenance and license revenue, cash burn rate, and
expense structure and noted the company is an
unattractive acquisition target because of its current
valuation, more than $400 million in debt and
quarterly losses. Carey previously had a hold rating
on i2, and his firm has done banking business with i2.
A.G. Edwards analyst William Broun said it remains
to be seen whether both i2 and Manugistics will be
strong enough to benefit when IT spending improves,
given that neither company is expected to earn an
operating profit for the next several quarters. Broun
lowered his rating from a hold and his firm hasn't
done any banking business with i2.
DeBiase noted that i2's deal sizes tumbled to
$240,000 from $560,000 in the March quarter. In
addition, the June-ending quarter was the first since
i2 went public that it closed fewer than five deals
under $1 million. The company managed to close only
one seven-figure deal, compared to nine in the March
quarter. DeBiase's firm has done banking business with
i2.
DeBiase said he is expecting i2 to announce plans
to lay off 15% to 20% of its staff when it reports
final results in mid-July.
Dallas-based i2 said it expects to report
second-quarter revenue of $117 million to $120
million, down from $168.4 million in the first quarter
and $241 million in the same quarter last year. That's
also more than 20% short of the $150.9 million
consensus estimate gathered by Thomson Financial/First
Call.
i2 said second-quarter license revenue is
expected to fall between $25 million and $26 million.
The company expects to post a GAAP loss of between $85
million to $88 million, which includes $8 million of
intangibles, amortization and restructuring-charge
adjustments. In a press release, CEO Sanjiv Sidhu said
the company expects to break even in the next three to
four quarters.
i2 also announced that executives Philip Crawford,
president of European, Asian and Middle East
operations, and Chief Marketing Officer Katrina Roche
are leaving to "pursue other career opportunities."
Customer relationship management software maker
Kana's preannouncement, meanwhile, prompted W.R.
Hambrecht analyst Rich Petersen to lower his rating to
market perform from buy and Pacific Growth Equities
analyst Patrick Mason to put his buy rating under
review until he gets more information on the company's
official earnings call.
Mason noted that Kana's cash is expected to be $46
million, down from $51 million last quarter. The
company said it expects cash to stay above $40
million. But deferred revenue rose and the company
signed two large deals totaling $9 million, with less
than $1 million recognized in the second quarter.
Mason said those details help give him added
confidence that Kana's future may not be as gloomy as
the preannouncement suggests.
Petersen, however, said he was lowering his rating
until he could get more information on Kana's costs
and confidence that it can reach and maintain
breakeven.
Kana reported its revenue and earnings would fall
short of estimates. Kana said it expects
second-quarter revenue to total only $17 million,
about 34% less than the $25.8 million expected by
analysts polled by Thomson Financial/First Call. Menlo
Park, Calif.-based Kana said it expects to report a
net loss of $24 million to $30 million, including
losses of $14 million to $18 million from the
reassessment of a long-term project.
Kana said in a press release that it expects
third-quarter revenue to be roughly in line with
second-quarter results. Analysts were expecting a
slight increase to $26.6 million.
Meanwhile, fellow customer relationship management
player E.piphany enjoyed a minor boost as analysts
pointed to the company's strong cash position.
"We think E.piphany has a lot going for it,
including very good products, very happy customers and
something more than $3 in gross cash per share," Legg
Mason analyst Paul Krieg said in a note. But he said
he is concerned about the company's sales
organization. "We just don't see much upside to
valuation in the near term," added Krieg, who has a
hold rating on E.piphany. Neither Krieg or his
associate Tony Borck holds E.piphany shares.
E.piphany warned that its net loss for the quarter
ending June 30 is not expected to exceed 18 cents a
share, compared with a net loss of 28 cents a share in
the year-ago period. Revenue is expected to total $19
million, including $6.5 million in license revenue,
the San Mateo, Calif., company said.
Wall Street was expecting the company to report a
pro forma net loss of 16 cents a share on $23.3
million in revenue, according to Thomson
Financial/First Call.
But the poor results of Kana and E.piphany don't
necessarily spell disaster for the CRM market and its
leader
Siebel Systems, whose
shares hit a new 52-week intraday low Tuesday.
Earlier Tuesday, another company in the CRM field,
Onyx Software(
ONYX Quote), said it
expects second-quarter results to exceed the current
Wall Street consensus estimate of a loss of 3 cents a
share. And fellow CRM software maker
Pivotal also is expected to
meet estimates, said Nathan Schneiderman, an analyst
at Wedbush Morgan Securities.
"I don't think it's fair to say it's just the CRM
companies that are getting clobbered," Schneiderman
said. "But it is a difficult environment to sell this
kind of software."
"The smaller companies have been clobbered, but
their license revenues have shrunk to a level that
allows them to be able to deliver some sequential
growth in license fees, whereas companies like Siebel
ad E.piphany are having a hard time," he added.
E.piphany is having a harder time than Siebel,
though, because it has tried to compete head-on with
the market leader, while the entire CRM space has
become more crowded as such enterprise software makers
as
PeopleSoft ,
Oracle and
SAP
have jumped into the fray, Schneiderman
said. Schneiderman has buy ratings on Siebel and
Pivotal and hold ratings on E.piphany and Onyx. His
firm hasn't done banking with any of the companies.
