Hard Times for the Supply-Chain Gang

You know a sector is in trouble when its top-selling company faces delisting from the Nasdaq.

Just this week, former highflying supply-chain software maker i2 Technologies(ITWO.PK Quote - Cramer on ITWO.PK - Stock Picks) announced that it abandoned its appeal of a Nasdaq delisting, given that it was unlikely to win because of a pending Securities and Exchange Commission investigation. Meanwhile, Manugistics(MANU Quote - Cramer on MANU - Stock Picks), the other front-runner in the supply-chain market, reports earnings Thursday, with revenue expected to decline year over year for the 10th quarter in a row.

Chalk up their suffering to increased competition from the large enterprise vendors, particularly SAP(SAP Quote - Cramer on SAP - Stock Picks), which can offer supply-chain software products as part of a larger suite to a huge base of customers. In addition to such formidable competition, i2 and Manugistics both suffer a substantial debt overhang.

But despite such dire straits, supply-chain is not dead yet, some investors and analysts say. Rather, at some bargain-basement prices, there may be upside as the economy picks up. When that will happen, however, is open to debate.

"I think we've hit the bottom. If you look at the results from i2, Manu and some of the supply-chain vendors out there, they've been able to hold revenue fairly consistent for the last couple quarters," said CIBC World Markets analyst Brad Reback. He sees opportunities for companies that make products addressing specific problems or needs.

But rather than direct investors to Manu and i2, the two early leaders in the space, Reback has a higher rating -- sector performer -- on Manhattan Associates(MANH Quote - Cramer on MANH - Stock Picks), which specializes in warehouse management. "Manhattan continued to grow while these other guys have shrunk dramatically," Reback said. He has underperform ratings on Manu and i2 because of their large debt levels. His firm hasn't done any banking with any of those three companies, and he does not own their stock.

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