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Supply, demand drive earnings

Supply and demand is at the root of profitable quarters for i2 Technologies and Intelligroup while Open Market posts another losing quarter.

Supply and demand is at the root of profitable quarters for i2 Technologies and Intelligroup this week while Open Market posts another losing quarter and continues to hold out for the e-commerce business to take off.

For i2, the demand is for its supply chain management software, one of the hottest niches in the software industry. And for services and consulting firm Intelligroup, the demand is for help in implementing software like i2 offers and more importantly huge business process systems from SAP, Oracle, PeopleSoft, and Baan.

I2, based in Irving, Texas, this week posted a 64 percent increase in revenues from last year's second quarter to $83.6 million from $51 million last year, not including charges from the acquisition during the recent period of InterTrans Logistics Solutions, a Canadian maker of logistics management software. During last year's second quarter, i2 bought two companies: Optimax Systems and Think Systems.

Profits for the recent period jumped 300 percent to $7.1 million, or 9 cents per share, from $1.7 million, or 2 cents per share, last year, not including acquisitions. Including the purchases, i2 made $600,000 in profits, or 1 cent per share, compared to a net loss of $1.3 million, or 2 cents per share last year's like period.

But the rosy quarter, didn't keep i2's stock from doing a nosedive today, plummeting nearly 30 percent in midday trading. Investment firm Raymond James Financials downgraded i2's stock to a hold from a buy.

One Wall Street analyst said the stock market was reacting to both i2 executives' confession that the company's pipeline was not as strong as they would like, as well as increasing competition from enterprise resource planning vendors like SAP and PeopleSoft denting i2's market.

Analysts are predicting that factors such as enterprise resource planning vendors developing their own advanced planning systems, will force a shakeout in the supply chain management market.

Market leader i2's main competitor Manugistics in Rockville, Maryland, felt the affects of the trend last month when it posted a loss for its recent quarter. It was more than Wall Street expected. The company blamed its results on focusing too much on short term sales rather than long term growth. It has since taken measures to correct the problem. But analysts said the trouble was an indication of the much bigger issue of too many players and not enough market.

Whether niche players like i2 or ERP vendors take over the supply chain market, implementation companies like Intelligroup, will still have plenty of work. Not including a one-time acquisition charge, the Iselin, New Jersey-based firm's profits doubled to $2.4 million, or 19 cents per share from $1.2 million, or 11 cents per share for last year's second quarter. Including the $256,000 in costs from the purchase of U.K.-based CPI Group, profits were $2.2 million, or 17 cents per share, 87 percent higher than last year's quarter.

Intelligroup's revenue was up 71 percent from last year to $32.8 million from $19.2 million. The results reflect the increasing demand for skilled implementers of business process automation systems like SAP's popular R/3 software.

But one market not benefiting yet from the corporate rush to streamline its processes is e-commerce. Open Market in Burlington, Massachusetts, posted a loss of $16 million, or 49 cents per share, for its second quarter compared to a loss of only $7.5 million, or 24 cents per share, the like quarter last year. Not including the one time charge for the acquisition earlier this year of ICentral, Open Market lost $5.2 million, or 16 cents per share, during the quarter.

Revenues for the period were $16.5 million, up only 6.5 percent from last year's second period revenue of $15.5 million. Still, finicky Wall Street remains enamored with the Internet commerce firm. Open Market's shares have been holding steady through the earnings announcement and even gaining a bit of ground in trading this afternoon.

One reason is analysts predict Internet commerce is going to be the next big technology corporations latch on to as they look for ways to not only sell their products directly to consumers across the Internet but to connect with suppliers. The result is an even more streamlined supplier to customer chain than today's ERP and supply chain software systems can deliver.