I2 hangs on to supply chain niche

I2 is alive and kicking.

Despite a full assault on its territory by enterprise resource planning vendors like SAP, analysts say Irving, Texas-based I2 Technologies is holding off the enterprise planning resource nemesis and maintaining its market share in the supply chain planning space.

"We recognize that there has been a pretty dramatic shift in valuation standards and ownership in the software space," said Credit Suisse First Boston in a recent report. "We also recognize that many investors fear I2 will miss the quarter. But we believe this company has the technology assets and market share momentum to withstand SAP's assault."

I2 recently rolled out new functionality, announced a partnership with supply chain execution software maker Industri-Matematik, and started going after new vertical markets like apparel, all in an effort to stay one step ahead of the competition and push by enterprise resource planning vendors.

Like its competitors, I2 the past year has watched many of its sales opportunities freeze up as customers stalled decisions while waiting to see what the enterprise resource planning vendors were going to deliver. This combined with the uncertainty of what would happen to I2 and the other niche players when enterprise resource planning vendors entered the space put Wall Street on guard.

But with SAP's advanced planning and optimization product now hitting the market, financial analysts are starting to put some support back behind I2, saying that SAP has several years before it catches up with anything resembling what I2 has on the market now.

"From Wall Street's perspective, [the release of SAP's advanced planning and optimization product] has been looming as somewhat of a black cloud over [I2]," CS First Boston continued. "However, individuals within the Big 5 integrator community tell us that SAP acknowledges offline their products are at least 12 months away from I2 by SAP's own estimates. I2 claims a two- to three-year lead."

And that lead, CS First Boston estimates, is plenty to position I2 well for future growth.

"There really is a competitive imperative to move to a build-to-order model with faster cycle times and constantly declining costs," the investment firm continued in the report. "Those companies feeling the most competitive pressure have the least time to wait for SAP's APO. This is showing up in these companies' evaluations and purchase behavior. From what we could tell, now that SAP's product is here, any competitive freeze on the market has since declined significantly."

And I2's quarterly numbers seem to support this idea. I2, in July, posted for its second quarter revenue of $83.6 million, up 64 percent from the previous year's second quarter. For this year's second quarter, license revenue was $52.7 million, up 53 percent from the year earlier period, and services and maintenance accounted for $30.9 million, an 85 percent leap from the same period last year.

While I2 executives cautioned that the third quarter, which just ended, would likely be slower, analysts are still bullish on the company.

"These results from I2 Technologies coupled with what we are hearing from our clients demonstrate that the market is still growing in excess of the healthy 50 percent that we have been projecting," said AMR Research in Boston. "In this regard, I2 Technologies appears to be gaining market share. Frankly, we expect to see I2 continue at the torrid pace."