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Intel-SAP venture shutting down

Pandesic, a 3-year-old application service provider, is closing down because it couldn't figure out how to make itself profitable.

    Pandesic, a joint venture between giants Intel and SAP, said today it is shutting its doors because it does not see a clear path to profit.

    "We are winding down our operations," said Paula Stout, a company spokeswoman. "We don't see a timely road to profitability and decided we needed to find a different solution?We are not accepting any new contracts, and we're working with our existing customers to seek a smooth transition to another e-commerce solution."

    The application service provider (ASP), which got a jumpstart in the e-commerce software market when it launched three years ago, also announced the resignation of chief executive Harold Hughes Jr. and president Pete Wolcott.

    Catherine Yetts, executive vice president, has been named as the interim CEO during the transition period, the company said.

    Sunnyvale, Calif.-based Pandesic has about 400 employees and has offices in the United States, United Kingdom and Japan.

    Stout said employees will be offered a severance package and assistance in finding new jobs. Some employees will be offered incentives to stay and work with customers during the phase-out.

    The company said it has about 100 customers, including Adidas, Express.com, the San Jose Symphony and Fila.

    Dave Boulanger, an analyst at Boston-based AMR Research, said he was not surprised by Pandesic's decision because the company has been struggling to gain market momentum for some time.

    "They were leading edge in 1997, but the market has changed significantly since that time," Boulanger said. "Pandesic is or was a great solution. Long before the term ASP was popular, they were there in the market."

    But the problem, he said, was that Pandesic never took the next step of providing a more customized package of applications and services to targeted industries, such as telecommunications and retail.

    Pandesic got a jumpstart by offering hosted business applications and by helping companies move their business to the Web. But Pandesic never changed its business model, Boulanger said.

    "If you look at the market now, they stick out like a sore thumb because they're off-center," he added. "They weren't getting back on track. They should have chosen a couple of verticals where they thought they could excel" like other ASPs have done, such as USinternetworking and eOnline Inc.

    Tom Holub, a spokesman for software giant SAP, said the company intends to work closely with Pandesic to move its existing customers over to mySAP.com, which is SAP's line of Internet-based business applications.

    "Our product line is a lot more compatible with Pandesic's," he said.

    Bill Caldor, a spokesman for Intel, said that there is no plan to fold Pandesic into Intel and that Pandesic's decision will have no material financial effect on the chipmaker.

    "We had high hopes for Pandesic," he said. "We're disappointed that the company wasn't able to reach the road to profitability."

    With Pandesic, Intel and SAP had hoped to cash in early on a fast-growing market. The reality is that Pandesic has struggled to meet profit targets and has suffered a management shake-up amid disappointing sales.

    Initially, Pandesic provided a package made up of SAP business applications, Intel-based PC hardware, and Web site management and support to quickly get small and midsized companies operating on the Web. At the time, only a few companies were offering a so-called one-stop shop to help build and host Web sites.

    Eventually, Pandesic broadened its offerings to provide e-commerce software that allows companies to conduct more complicated transactions with their suppliers and partners over the Web.

    Just last month, the company signed a distribution deal with PricewaterhouseCoopers in an effort to broaden its somewhat limited sales channel and regain some of its lost momentum. With the alliance, Pandesic and PricewaterhouseCoopers were aiming to generate $1 billion in revenues during the next three years.