J.D. Edwards Shifts Strategy With Siebel Deal

Stung by a slowdown in its back-office software market, J.D. Edwards is branching into a new market.
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SAN FRANCISCO -- With the market for back-office automation software in the dumps, J.D. Edwards (JDEC) has taken a quick turn in strategy.

The Denver-based enterprise software company announced a partnership with

Siebel Systems

(SEBL)

that will help J.D. Edwards broaden its product line. J.D. Edwards has traditionally focused on selling software to help mid-market companies automate back-office tasks. Siebel's strength has been to sell high-end software to handle front-office sales tasks.

Under the multiyear agreement, J.D. Edwards will resell Siebel's sales force automation applications to complement and expand its new OneWorld customer service management system on all computer platforms, says Etta West, J.D. Edwards' director of investor relations. J.D. Edwards will pay Siebel royalties for the software and will start training its staff and selling the product in June, with the first phase of product integration coming in October. Revenue from the deal is not expected to show up until fiscal 2000, which starts in November for J.D. Edwards.

Siebel declined to comment on the deal.

Though analysts say it's too early to estimate how much the deal will add to either company's revenue, they generally believe such a deal, marking a shift in strategy for J.D. Edwards, could be important for the ailing company. The stock closed at 16 1/4 Thursday, up 1%, while shares of Siebel rose 2% to 43 7/8.

J.D. Edwards, along with other enterprise software companies, has suffered from a sharp slowdown in corporate spending this year as companies focus on fixing year 2000 problems. On May 3, the company said it expected to post a second-quarter loss of $25 million when they release earnings May 26.

Because of the sales slump in back-office software, or software to automate accounting and human-resources tasks, some companies in this arena have scrambled to move into new markets, including software to manage customer databases and automate sales tasks. Companies such as

SAP

(SAP) - Get Report

and

Oracle

(ORCL) - Get Report

have decided to build their own software for these new markets, but J.D. Edwards has now clearly shown it will take a different track.

"It's seen the trouble SAP has had getting supply-chain management applications out and

Baan

(BAANF)

with its integration," says William Chappell, analyst at

J.C. Bradford

. J.C. Bradford has not performed underwriting services for J.D. Edwards.

"It's a shift in strategy," says George Gilbert, analyst at

Credit Suisse First Boston

. "J.D. Edwards has always been about tight integration of its products. Now, they're bundling in other products. It's like they're building things with Legos and Lincoln Logs now, not just Legos." The deal could potentially have a "material impact on revenue" in the next couple of years, Gilbert says. CS First Boston has not underwritten for J.D. Edwards and rates the company a hold.

"We suspect this is more than just a stop-gap solution for J.D. Edwards, which had previously announced its intention to build its own sales force automation application," Gilbert says. "Third-party technology now appears to be part of J.D. Edwards' strategy of expanding its product line."

"It's a positive for both companies," says Chappell, who rates the company a buy. "For Siebel, it'll be a great opportunity to get into the mid-market, and for J.D. Edwards, it should give them some cross-selling opportunities."

Though West declined to say whether J.D. Edwards plans to announce more partnerships next week when the company has its user conference in Denver, she says the company has "changed a bit from building it all ourselves" to partnering with other companies to improve product offerings and time-to-market.