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PeopleSoft revs up to speed into the fast lane

The company's chief executive, Craig Conway, tells why he thinks PeopleSoft is well positioned to compete with rivals Oracle and SAP.

When Craig Conway joined PeopleSoft as chief executive last year, he likened the business software maker to a car-crash victim found unhurt but dazed by the side of the road.

The company's stock was in a downward spiral as corporate clients slowed their spending because of Y2K worries. Founder and CEO David Duffield had resigned. And the company's strategy was in disarray as competitors like Oracle and SAP took giant strides with Internet-based business applications.

This week, the company formally launched a suite of more than 50 Internet-based products Conway hopes will have PeopleSoft back in the fast lane.

Conway told CNET yesterday that he thought analysts' expectations for the company's 2001 earnings were about 50 percent too low. He's pegging the number between 60 cents and 65 cents a share, compared with analyst estimates of about 40 cents per share, largely because of strong expectations for the company's new suite of products.

Conway spoke about why it took such a long time to release Internet-based applications to compete with the ones PeopleSoft's rivals have been touting for the past year, and whether he now thinks the bad times for the company are in the past.

What are your sales projections for PeopleSoft for the second half of the year?
We are looking forward to increased revenue and earnings in both license and service revenue. We think the company is very well positioned.

We do think that since (the fourth quarter) last year, we have a steadily improving top-line and bottom-line performance. Just getting to this point--what we consider a launching point--makes us pretty excited about the company.

With major software makers like Computer Associates issuing earnings warnings, and given PeopleSoft's performance until recently, what gives you this confidence?
Whereas some companies like CA and a few others are sounding earnings warnings, we are actually sitting pretty comfortable with analyst expectations for PeopleSoft short term.

And in the long term, we think that their expectations for the company in 2001 were low. We told analysts that their expectations for PeopleSoft were 50 percent too low. Analysts were somewhere between 40 cents and 45 cents per share in 2001. And we said that number is going to be somewhere between 60 cents or 65 cents.

By the way, no one has changed their estimates, which frankly is an indication of something. Maybe they want to see more signs of our recovery. It is rare that you get a company upping its EPS estimates with the analysts by 50 percent.

Why did it take PeopleSoft so long to come out with the new products?
It was a complete rewrite of the code--that is why (it took) two and a half years. We rewrote from scratch, and that takes an enormous amount of R&D--in our case that was 27 percent.

I don't think there's been a technology with more than a $1 billion market cap that has spent 27 percent of its revenues on R&D. It was expensive from an R&D point of view; it was expensive from a time point of view. But when we finally came to market, we came to market with a product that is clearly better.

Still, how do you put a dent in Oracle and SAP's lead?
We were four months late compared to Oracle, but we were four months later than an inferior product.

Oracle and SAP don't have an Internet architecture yet. Oracle has Internet access to a client server architecture. But that is like having a computer with a very long extension cord.

It is not an Internet architecture unless the application resides at a Web site. There is no code on the client, and it's got a Web screen and not pull-down menus but hyperlinks. It has to be XML based.

Now in the second phase, we have to execute from a sales and marketing point of view. Luckily, it is not subtle or camouflaged. You don't need much research to tell theirs is a hybrid of client-server and Internet access and ours is pure Internet.

How well is your application service unit doing?
Since February we have 16 customers and 190 in the pipeline. They are a combination of midsized companies and some that are Fortune 1000 companies. We also have 12 ASPs we have partnered with, including Corio, US Internetworking, (PricewaterhouseCoopers)--all the premier ASPs. And in February we opened our own ASP.

Do you agree with Oracle CEO Larry Ellison that ERP (enterprise resource planning) is dead?
I think Oracle is doing more to promote the same tired ERP concepts than any company in the industry. What was ERP all about? Integrated suites of very broad applications. What is Oracle selling? A vision that every application is going to be part of the Oracle suite. Where have we heard that before? That was the ERP promise.

What he is absolutely right about is that ERP is dead. He has articulated why Oracle's strategy and vision is flawed.

Companies don't like to license huge interdependent suites of products. PeopleSoft has essentially abandoned the old paradigm of ERP and replaced it with a pure Internet implementation of applications that can be implemented with each other or with any other software company.