At i2, Serving Those Who Covet Another's Inventory Data

Its new product aims to use the Web to put supply chains in harmony.
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SAN FRANCISCO -- Share and share alike is the idea behind i2 Technologies' (ITWO) latest offering.

i2, the leading maker of software that helps companies manage their own supply chains, is preparing a product that will allow firms to check one another's inventories using the Web.

With its new product, dubbed Rhythm Tone, the Irving, Texas, concern will become the first major software company to offer manufacturers a Web-based glimpse into suppliers' inventories. The tool could create a new and potentially robust market by helping manufacturers adjust production levels according to the availability of supplies.

Rhythm Tone will be unveiled June 16, says a source close to the company who asked not to be identified. i2, which declined to comment on the new product, previewed Rhythm Tone at a customer conference last month.

Analysts who have had an early look say the product could become material to i2's revenue within a few years. The software aims to create a community of manufacturers and suppliers that can share information regardless of whether they are i2 customers, says Brent Thill, an analyst at

Credit Suisse First Boston

.

"It's Web-based so a supplier and manufacturer will get passwords and be able to check in via a Web interface and share information with each other," says Thill, who attended the April conference and rates i2 a strong buy. "Customers tell us this is very important, and no one is doing it on a wide scale right now."

Though analysts say it's too early to estimate how much revenue i2 can garner from Rhythm Tone, Thill, whose firm has not underwritten for i2, believes it will be a key product and could significantly add to revenue within a few years. i2's revenue has risen nearly tenfold over three years, to $360 million in 1998, as efficiency-seeking manufacturers have sought out its products.

Rhythm Tone could position i2 as a leading software vendor in the growing market for corporate e-commerce, in which companies conduct business with customers and suppliers on the Internet. For now, the product could bring new customers. "It will influence customers not currently within the i2 planning family to closely evaluate their supply chain management, which puts i2 in a better position" to sell more of its original products, Thill says.

Kash Rangan, analyst at

BancBoston Robertson Stephens

, says the subscription-based revenue model that i2 will likely use for Rhythm Tone is less erratic than other software models and should help smooth overall revenue into a steadier flow. BancBoston is advising i2 in its purchase of

Smart Technologies

and currently has no rating on the stock.

The main concern about Rhythm Tone is whether i2 will be able to persuade suppliers to divulge valuable inventory information to manufacturers. A supplier may not want to make that information readily available because it can reveal the health of business or expose coveted data to competitors.

Thill recognizes that as a legitimate issue but believes i2 will be able to assuage potential customers by guaranteeing some form of security, possibly with password-protected sites or nondisclosure agreements so companies can control who looks at their information.

Besides, he says i2 has already enlisted tech heavyweights

Sun Microsystems

(SUNW) - Get Report

,

Compaq

(CPQ)

and

IBM

(IBM) - Get Report

to help develop the system. With backing like that, getting others to sign on may be easier, he says. Sun wasn't available to speak about Rhythm Tone, and IBM and Compaq did not return phone calls seeking comment.