Baan posts loss, plans reorg
Coming off its first losing quarter, Baan is cutting its workforce, reorganizing management, and taking other actions to bolster its sagging business.
The Dutch maker of business automation software announced today as expected a loss of $31.7 million, or 16 cents per share, for its third quarter ended September 30. That's down 273 percent from last year's posting of an $18.3 million profit, or 9 cents per share.
Revenues for the period increased 13 percent from the previous year's period to $195 million from $173 million. For the nine months, revenues were up 30 percent to $605 million from $465 million but the company is posting a loss of 6 cents a share compared to a profit of 23 cents a share the first three quarters of 1997.
The company's financial troubles are a result of a steep drop of about 20 percent in license revenues to $86.6 million from $108.7 million the third quarter last year.
As part of a recovery effort, Baan executives announced they are laying off nearly 20 percent of the firm's global workforce. The layoffs are coming mainly in sales, marketing, and overhead departments, a large portion of which will be in the United States.
The layoffs and a reorganization are expected to result in a $110 million charge next quarter. Baan executives said the layoffs are to consolidate and streamline all the businesses it has acquired the past two years.
Baan executives are blaming the company's problems on a combination of bad global economic conditions, market volatility, and customers stalling software implementations and redirecting resources to cure Year 2000 problems.
Most of the enterprise resource planning vendors are reporting slower growth as the millennium approaches. But analysts said Baan's problems go deeper and are more a result of Baan struggling to get an indirect sales system off the ground.
Enterprise resource planning vendors have traditionally been direct sales companies. Baan is the first of the major firms to try to sell its product to customers through other channels. It's a risky proposition given that customers can spend up to $10 million and years implementing the systems that will eventually run nearly every core business process in a corporation, said Jim Shepherd, analyst at AMR Research in Boston.
"There are people who like to buy from the manufacturer. People are not comfortable betting their business on a system from some $3 million local operation," Shepherd said. "There is nothing wrong with Baan's product and nothing wrong with the market; [the quarterly results] are because this is a very new indirect sales model and is untried and isn't working yet. But it begs the question: Will ever it work?"
Indirect sales also tend to be smaller sales, so the average sale price goes down which is also going to be a factor for Baan's bottom line.
But Baan is willing to wait it out. Besides laying off "duplicate direct sales" teams internally to let external indirect sales channels do the job, the firm has been going through an ongoing top management shakeup the past year. Founders Jan Baan and Paul Baan are virtually out of the picture now with U.S. businessman Tom Tinsley now in the role of chief executive.
Baan executives announced today that Mary Coleman will take on the presidency of the company. Coleman is the former head of Aurum Software, which Baan bought over a year ago. Aurum makes front office automation software that runs sales force, marketing, and customer service departments. It is one of the few bright spots in Baan's otherwise dismal financial picture.
"Mary and her team have built Baan's Front Office subsidiary into a leadership position as acknowledged by the Gartner Group in the last year," Tinsley said in a prepared statement. "Mary brings to the Baan Company a strong background in managing marketing, sales, research and development, and service and support, which will be very important as we move into the next phase of the enterprise applications market.