Not content with being big in the back office, number one supply chain supplier i2 is looking for future growth in the broader context of e-commerce. But will its $80m takeover of Smart Technologies’ web shopping and customer management applications help take it where it wants to be? What value does it see in a commercially challenged software house with a low profile, a largely unproven product set, relatively few customers and dwindling sales?
CEO Sanjiv Sidhu has been talking up the importance of the deal, saying that the move will help extend i2’s solutions footprint out from its supply-and-demand and business-to-business core up into the much bigger universe of business-to-consumer and web self-service applications. This is the single largest opportunity for the company since its inception. We expect the move to expand i2’s market by a factor of five, Sidhu claimed in a conference call to analysts last week. As well as filling out the i2 portfolio with customer management applications, the buy is expected to help carry the supply chain house out from its home base of hi-tech manufacturing and heavy industry into sectors new to i2. The magnets are the verticals of telecommunications, banking and insurance where Smart Technologies claims to have a customer base.
i2 says it has lots to offer prospects in these areas. The mix of financial products has got to be highly complex, there are parallels that can be draw with the product configuration management problems we are dealing with every day in consumer electronics, Sandy Tungare, an i2 executive explained to us. This acquisition provides us with some ready-made opportunities to expand into new market sectors. There is also the real potential of i2 being able to switch on Smart product sales across its own customer base too, he feels. The configuration management technology surfaced through i2’s work with Compaq, as it is designed to helps the PC maker try to adjust its supply chain to better the speed and subtlety of Dell’s. It thinks that if the technology works well enough for Compaq, then it’s very likely to suit a good many other companies that count among i2’s high-tech installed based.
Founded in 1995, Smart Technologies was backed by ex Tandem chief, Jim Treybig and some $40m in venture capital. The company won some big name clients in the past few years and counts Minolta, Apple Computer and Ziff-Davis as customers, as well as the important i2 users of Motorola and Compaq. Smart seems to have lost its way over the last couple of years, however. For its last full 12 months the company generated only $7m in sales against a run rate of expenses that reached $23m last year. There’s been some degree of management churn and staff numbers have fallen steadily in recent months from a high of 120. The company appears to have spent most of the last year reinventing itself, shifting its position from one of web tools supplier turned systems house to an e-business applications provider. During this time, it claims to have completely re-engineered its product line.
Having spent more than a year in development, i2 Technologies seems to feel that Smart’s products are now ready for market. Smart’s Touchpoint products, which are built around the first quarter 1999 Version 2 release of Smart’s SmartDNA architecture, will give a trader’s customers and channel partners personalized web-window access to i2’s electronic Business Process Optimization (eBPO) applications. That would mean customers and partners could then determine material available-to-promise over the web.
The supply chain, product configuration and customer management aspects of e-BPO are positioned perfectly to fit with the Smart front end, Tungare claims. The purchase provides a complete end- to-end fulfillment application. Smart Technologies had spent some $45m on R&D working on its front end applications, Tungare told us. That, along with some new customer service applications and the domain expertise that can be tapped into, makes it well worth the $80m
paid, he feels.
This is the fourth i2 acquisition in the past couple of years and the company feels it has the know-how to integrate the purchased products with its own and quickly ramp up Smart Technologies sales. It intends to issue 2.1 million i2 shares for all aspects of the Smart business, as well as taking on some $10m of debt of the 90 strong Austin, Texas based business. The deal will be treated as a pooling of interests, closing by the third quarter 1999, by which time i2 expects to have carried an additional charge of $2m in acquisition expenses. By 2000 the company expects a $30m contribution to be coming from its Smart division. i2 considers there’s much for it to do with Smart. The real value [of this deal] comes from the integration [plan], says Sidhu.
The scheme outlined is to have Smart’s DNA eCustomer System and the Touchpoint product line sit aside i2’s Customer Commitment Suite (for product configuration and online pricing management) and an as yet to be announced Internet Fulfillment Server product. This is a highly scalable ATP (available to promise) e- business engine that is said to be able to handle up to 1,000 requests a second as it checks configuration capability on the fly. i2’s idea is in fronting these back-end applications with Smart features such as shopping carts, self-service order checking, online catalog and other so-called ‘customer enabling’ features it will allow for live web-based cross-selling and/or customer self-service features.
The thinking is that slick, personalized web sites are of little use unless they are matched with streamlined inventory management, order entry and fulfillment processes and a highly optimized logistics and distribution operation. There is more to e-business than meets the eye.
i2 earned $20m on revenues of $362m last year. In the first quarter of 1999 ending March 31st it announced record revenues of $117.2m, an increase of 64% on previous year numbers and the company’s 22nd consecutive period of record sales.
