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Siemens hits snag with i2 software

The German manufacturer has developed its own software to set up an online order tracking system after finding flaws in an application it bought from i2 Technologies.

Software that i2 Technologies sold to Siemens was flawed and couldn't be fixed in time to meet a project deadline last year, leading the German manufacturer, i2's largest customer, to develop its own software for the project, i2 said Friday.

Siemens Information and Communication Networks, a division of the company based in Munich that makes telecommunications equipment, had planned to use i2's Global Logistics Monitor application to set up an online order tracking system that lets employees and customers check the status of orders at any time.

But last fall, Siemens found that the application did not have key features it needed, nor was it able to handle the high number of transactions the business generated. So the company decided to develop its own application, rather than wait for i2 to fix the problems.

i2 fixed the application in late December after eight weeks of working on it. Now Siemens is deciding whether or not to use the fixed application instead of its own software, which is already in use at the ICN division, according to i2.

Siemens purchased the i2 software in 2000 in a $100 million sale, the largest ever for i2. The scope of the Siemens project is vast, involving a three-year deployment of 50 different i2 applications at 100 Siemens divisions operating in 200 countries.

Siemens has successfully implemented other i2 applications and is otherwise satisfied with i2's products, said i2 spokesman Brent Anderson. The problem at Siemens ICN is just a normal part of any large-scale application project, he said.

"That was one isolated instance of something that didn't meet their requirements," said Anderson.

Siemens was unavailable for comment.

Though i2 downplayed the issue, it disclosed the troubled Siemens project in regulatory filings this week as a risk related to business.

"Siemens has asserted certain claims against us regarding issues they claim to have experienced with respect to some of our software products and services," the filing states. "Whether customer claims of this type are founded or unfounded, if such claims are not resolved in a manner favorable to us, they may affect the market perception of our company and our products. Not only could this have an immediate effect on our stock price, but the potential resulting damage (to our reputation) could affect our ability to sell our products, which would seriously harm our business, operating results and financial condition."

The company has first-hand experience with that scenario. Last year, i2 customer Nike publicly blamed software glitches in the i2 applications for order delays and excess inventory in its footwear division that contributed to the company missing earnings targets. Following that news, i2 shares plunged, and its shareholders filed a class-action suit against the company for not disclosing problems at Nike in regulatory filings.

News of the Siemens snafu follows warnings from i2 earlier this week that it expects to miss revenue targets for the first quarter.