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Enterprising J.D. Edwards Keeps Expanding

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SAN FRANCISCO -- Asia is a mess. Eastern Europe is a horror. Year 2000 fixes are eating up precious corporate resources. U.S. corporate earnings are slowing. So why is J.D. Edwards' (JDEC) chief financial officer, Rick Allen, smiling?

Investors in the software market haven't had much to be cheerful about lately. But J.D. Edwards, which develops software that helps companies automate business, has been succeeding where competitors like


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-- which just earned a spot in the

S&P 500

-- have all struggled.

But a year after its initial public offering at 23, J.D. Edwards has


its shares almost double, closing Thursday at 40.

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J.D. Edwards built its name as the leader in enterprise software that ran on the


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AS/400 platform for mid-sized companies. Nothing wrong with that, but the fastest-growth sector was in providing software for


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-based workstations running

Windows NT

. Before it went public, J.D. Edwards launched a new product to go beyond its dependence on IBM AS/400. The company has garnered a list of clients that includes

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American Home Products






Although generally considered the No. 4 player in the enterprise software market, behind SAP, Oracle and Baan, J.D. Edwards is one of the fastest-growing companies in the sector.

"We have to grow in the mid-50s

percent range for the next few years to gain market share," Allen said. That rate far outpaces industry forecasts of 30% to 35% growth in the next few years.

"We are in the middle of the planning process for our expansion," said Allen, "but we will bring in upwards of 2,000 people across all aspects of our business." That's a 48% increase on an employee base of 4,200.

Much of J.D. Edwards' new growth is expected to come from the non-AS/400 market. J.D. Edwards entered that area about a year-and-a-half ago with One World, which helps automate accounting and human resources tasks and works on both




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NT. In the third quarter, some 20% of licensing fees came from non-AS/400 sales, up from about 13% in the previous quarter.

"Historically, we've been in the AS/400 world, which is about 20% of the

enterprise resource planning market," Allen said. "We're the gorillas in that market, but with One World, we can also play in 70% more of the market -- I say 70% because

no one

can play in 100% of the market."

In December, J.D. Edwards plans to introduce a new version of One World that will address front office needs like customer support management, which he thinks will fight off any industrywide slowdown.

Enterprise software critics worry that growing year 2000 costs and economic pressures will slow sales as early as the fourth quarter. But Allen argues that in choppy financial markets, companies have to get more efficient and cut costs -- and enterprise software is one of the best ways to do that.

"I think J.D. Edwards can continue to beat the Street's estimates, not just in the fourth quarter but for the next few quarters," said Trent May, portfolio manager of

Invesco Growth Fund

, who said he can see the J.D. Edwards office from his window. "There are two reasons.

J.D. Edwards is strong in the space they compete in, and their operating margins are quite below

those of their peers." May said Invesco owns about 1.5 million shares in the enterprise software firm, with about 150,000 in his fund.

When asked about beating expectations, the 41-year-old Allen smiled, crossed his arms and said, "In the fourth quarter, we expect all indicators to be up." Fourth-quarter earnings are due after the market closes Dec. 3.

Allen said he feels "entirely comfortable" with

First Call's

consensus estimate for fourth-quarter earnings of 33 cents per share and year profit of 67 cents. The fourth-quarter estimate is up a penny from a month ago and the forecast for the year ending this month is up from 58 cents in March.

In the third quarter, J.D. Edwards earned 16 cents per diluted share, beating analysts' expectations for the fourth consecutive quarter.

As long as Allen's company beats expectations, he can smile all the way to the bank.

For more info on institutional holders of this stock, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.