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SSA reports fourth quarter loss

System Software Associates is slowly trying to recover from the brink of financial ruin but is unlikely to be the powerhouse it once was.

System Software Associates is slowly trying to recover from the brink of financial ruin but is unlikely to ever be the powerhouse it once was in the business application business.

Chicago-based SSA today announced a fourth quarter loss of $3.5 million, or 7 cents a share, compared to a profit of $300,000, or 1 cent a share, in the like period last year.

Revenue for the recent period was $112.5 million, compared to $125.6 million a year ago.

But SSA executives are pointing to the quarter over quarter improvements this year as proof the company is on the rebound.

"We continue to aggressively manage cash balances by focusing on expenses, accounts receivable, and capital," said William Stuek, chairman and chief executive of the software firm. "We believe SSA's performance in the fourth quarter validates the success of our restructuring plan. Operating losses decreased from $12.4 million in the second quarter, to $11.2 million before restructuring and other charges in the third quarter, to $2.3 million in the fourth quarter. We believe SSA is well positioned for growth and profitability in 1999."

SSA took a $120 million restructuring charge in July, the third step in a four-part plan to recover from its two-year slide. The firm, whose AS/400-based BPCS software once ruled the industrial market sector, has struggled to regain the momentum it lost when client-server computing, led by SAP, stole its market share.

SSA also has itself to blame. A main reason it wound up where it is today is that it spent millions in early 1996 to revamp its product to an object-oriented, Unix-based system. It was an attempt to leapfrog competition but nearly killed the firm in the process. The planned $125 million project took $200 million to complete, and customers stalled placing new orders while waiting for the new product to be released and then mature.

SSA executives said the company also made the fatal mistake of trying to compete head on with SAP for large enterprise deals at top-tier Fortune 500 companies instead of sticking with its core market-divisions of those huge companies and smaller manufacturing firms.

"SSA needs to stay out of SAP's headlights," said Bruce Richardson, analyst at AMR Research in Boston. "SAP will leave them as road kill. SAP has driven everyone out of that market including those in better financial shape than SSA."

SSA is now hoping to corner the market on selling systems to automate plant-level processes while letting SAP automate the corporate offices. SSA also has a huge installed base to continue to care for as it struggles to find its new niche.

With roughly 8,000 customers running SSA's BPCS product at some 21,000 sites word wide, SSA has a pretty substantial base to work with as it tries to stabilize and sell its latest component-based which has a history of being extremely buggy. This fact added to the new management and growth plans has Wall Street keeping a wary but interested eye on SSA.

"On the road to marriage, we have had a good first or second date, that's what I call this quarter," said Eric Upin, financial analyst at BancBoston Robertson Stephens in San Francisco. "I don't think they can return to where they once were."

Still, BancBoston Robertson Stephens upgraded SSA's stock rating in recognition of the new management's progress in steering the company toward recovery.

"We upgraded them from a market performer, which means avoid at all costs, to a long-term attractive buy," Upin said. "SSA is what we view as a double speculative buy. It still has a lot of bleeding that needs to be fixed but it has good doctors now."

SSA stock has been trading around the $7 range, a range that traditionally means a company could either plummet or make a big comeback. Upin said if SSA continues to stabilize its product and focus on its traditional customer of middle market manufacturers, it has a good chance of being a threat to the growth plans of larger competitors like SAP and PeopleSoft who are trying to sell to these smaller companies too.

And if it is remotely successful, that cheap stock could double or triple easily making it an OK risk for speculative investors with extra cash lying around, but not a good bet for your life savings.

The next few quarters are the ones too watch. Stuek has promised a return to profitability in 1999.