Tackling financial troubles, a tarnished reputation, and the possibility of yet another round of layoffs, the Dutch business software firm has cancelled its BaanWorld annual user meetings, which had been planned for this May in Nashville and later this year in Europe.
Indeed, these aren't the rosiest days for Jan Baan's company, which is expected to announce disappointing fourth quarter results next Tuesday. The company has already warned of an expected $250 million loss, or about $1.25 per share. License revenue is expected to fall to $70 million--a 50 percent dip from the same quarter a year ago, according to a Salomon Smith Barney report.
"They're damaged goods in the eyes of businesspeople," said Eric Upin, analyst at BancBoston Robertson Stephens.
"They have a very daunting task ahead of them and there is no easy medication or surgical procedure that's going to affect these problems, and the problems have spread far beyond the reach of a quick fix," he added.
Upin said Baan likely canceled BaanWorld over its high costs and the firm's focus on its current round of cutbacks. Other analysts said Baan must truly be suffering to justify walking away from its premiere marketing event.
Yet Baan spokesman said the company had decided the annual show wasn't the best way to meet with users.
"When we looked at it we realized there was probably a better way to reach our customers," said spokesman Bill Pendergast. Instead of the grand show, Baan will hold a series of smaller "town meetings" across the country to allow the company to get closer to its customers, he said.
Avoiding more job cuts
In the meantime, the Baan is asking its own employees to do their part to cut costs so the company can avoid more layoffs.
In an internal memo, Baan president Mary Coleman told employees the company needs to trim another $15 million and will do so by cutting employee travel, phone, and other expenses.
In the memo, Coleman, the former head of front office vendor Aurum, acquired by Baan in 1997, said she couldn't promise there wouldn't be more layoffs.
"I think that's an automatic," said Bruce Richardson, analyst at Boston-based AMR Research, who noted he wouldn't be surprised if the company cut salespeople as well.
"Next Tuesday is going to be ugly when they announce the results," he added.
Baan, founded in 1978, has been hit hard by internal problems and an overall sales slowdown in the Enterprise Resource Planning (ERP) software market, caused partly by market saturation, the economic downturn in Asia and Latin America, and a temporary shift in corporate spending to Year 2000 fixes.
As part of a restructuring last fall, Baan laid off 1,200 employees, or 20 percent of its workforce. That restructuring also included office closures, business sales, and a write-down of certain assets. The company said it will take a $160 million charge in the fourth quarter for these activities.
"The uncertainty Baan has generated about their future has driven customers and partners away in droves," said Joshua Greenbaum, head of Enterprise Applications Consulting in Berkeley, California. "Nobody feels comfortable about doing business with this company because no one has any idea what's happening."
And that's Baan's fault, he added.
The company's key partner relationships are also suffering. Greenbaum said the firm was absent this week from Microsoft's Seattle-based launch of its Windows Distributed InterNet Applications (DNA) Architecture for the manufacturing industry. In the past, Baan and Microsoft have touted their close working relationship.
This week, Microsoft named JD Edwards, SAP, and Ernst & Young as among its list of partners for Windows DNA, but Baan wasn't on the list.
"This event was clearly in line with Baan's former strategy of being a strategic partner of Microsoft's and this would have been ideal for Baan," Greenbaum said. "The fact that they weren't present at all shows they're in such dire straights that they are missing opportunities that they can't afford to miss."
Sources said Microsoft asked the company to attend, but Baan declined. However, Baan is expected to announce its business-to-business strategy with Microsoft in April.
In the meantime, rumors that Computer Associates could make a bid for Baan's ERP business have persisted in recent weeks as the company's financial position has worsened.
Richardson said if Baan sold off its ERP business, as well as the Coda Group, its U.K.-based financial applications firm, and focus solely on Aurum's front office business, it might improve shareholder value.
"They've made a dozen acquisitions and the level of integration between their products is very low," Greenbaum said. "It makes sense for them to divest assets."
Baan, including its front-office and ERP business, is worth about $1.8 billion, compared to front-office vendor Siebel Systems, which is valued at $4 billion.
To improve its market position, Richardson said, the company needs to focus on whether it's "going to be Baan or Aurum."
While the fourth quarter proved to be more difficult than anticipated, Baan executives, in a press release issued last month, said the company landed about $100 million in new license contracts from companies including Volvo, AT&T, Delta Airlines, and GM-Opel.
The company said it also lowered its operating expenses to $200 million per quarter to help meet the challenges of dwindling sales. Baan also received a needed $75 million infusion from Fletcher International in January, with a potential commitment of up to $150 million more to come.
But the company faces an uphill battle, analysts said.
"If there isn't a sharp turnaround very, very soon this company is going to be on the block and they're not going to get a pretty price for it," Greenbaum said.