Ilog reaps business software deals

Ilog wants to be to supply-chain software what Intel is to PCs.

And the small and relatively unknown French firm is slowly doing just that.

"As a software vendor, it parallels the visibility issues that Intel had when it launched its processor inside marketing program," said Byron Miller, analyst at Giga Information Group in Cambridge, Massachusetts.

"Ilog doesn't sell supply chain applications. It sells the optimizers that are found in all the top-tier companies and in the companies that comprise more than 50 percent of the market. In addition to the supply chain companies, it has sold optimization components to the industry's who's who for automotive, steel, chemicals, airlines, airports, and marine ports," Miller said.

Such hoopla is also driving sales. For its fourth quarter ended June 30, Ilog's revenues were $16.2 million, a 70 percent leap from the like quarter last year. For the 1998 fiscal year, the firm's profits nearly doubled to $3.1 million from a $3.7 million loss the previous year, not including a one-time charge for the acquisition of CPLEX, a maker of another type of optimization software. Revenues jumped 64 percent to $56.4 million from last year's annual revenue of $33.3 million. Its share prices in a year climbed nearly 131 percent.

Ilog makes software that performs complex mathematical calculations called algorithms, which are the engine that drives many of today's hot new advanced planning and scheduling software systems. It also makes visualization software particularly for the telecommunications industry for managing service networks by giving users multidimensional graphical views of the operations and tools for building and managing the development of component-based applications. Components are chunks of reusable code that define a certain function within software or a business process.

Ilog customers include IBM, Hewlett-Packard, NTT in Japan, US West, France Telecom, British Telecom, Deutsche Telekom, and even Intel itself.

Among the companies that have embedded ILOG's optimization technology in their products are: German giant SAP, Rockville, Maryland's Manugistics, i2 Technologies in Irving, Texas, and Denver-based J.D.Edwards, which called on Ilog to provide all of the advanced planning functionality for J.D. Edwards' ERP product OneWorld.

In fact, SAP recently bought a 5 percent share in the firm for $10.5 million, about 25 percent more than the stock was worth at the time of trading.

""[Ilog] has positioned itself to be one of the leading providers of visualization and optimization component software," said AMR Research in Boston. "Its relationship with SAP should bring significant sales to Ilog as [SAP's supply chain management products] begin to sell."

But AMR warns that Ilog's success may also be its downfall if the company doesn't explore new markets.

"It has done such a good job tapping the [advanced planning and scheduling independent software vendors] that it will be difficult to find new partners in this area," a recent AMR report stated. "The company recognizes this and plans to put more focus on selling through integration partners."

Still, there are plenty of markets demanding Ilog's type of product. According to AMR, total spending in the United States on transportation and inventory handling is more than $800 billion. That accounts for more than 10 percent of the gross domestic product last year.