i2 to miss estimates, trim staff

Citing delayed customer purchases, the business-to-business software company says it may lay off up to 10 percent of its work force and will miss expectations for first-quarter earnings.

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
4 min read
Citing delayed customer purchases, business-to-business software company i2 Technologies said Monday that it may lay off up to 10 percent of its work force and will miss expectations for first-quarter earnings.

i2 will top sales estimates for the quarter. The company said it expects total revenues of around $355 million, and earnings of about 2 cents per share. A survey of analysts by First Call predicted earnings of 5 cents per share on revenues of $348.52 million.

In the year-ago quarter, the company earned 4 cents per share on sales of $186 million.

Shares jumped 13 percent in early-morning trading of more than 12 million shares, up $1.94 to $16.44.

i2 makes supply-chain management software that helps manufacturers plan and schedule production and related operations such as raw materials procurement and product delivery. It recently acquired e-procurement software maker RightWorks, positioning it more directly against competitors such as Ariba and Commerce One.

i2 said Monday that it was "reassessing" its forecasts for 2001, noting that "our previous guidance for 2001 was based on the extremely high demand we saw last year."

"Given the current economic environment and the associated decrease in revenue visibility, the company is reassessing its guidance for 2001 and is planning to take measures to reduce its cost structure by 5 percent to 10 percent," Chief Financial Officer Bill Beecher said in a release.

The cost cuts, which could involve layoffs of up to 10 percent of the company, will result in an unspecified second-quarter restructuring charge, Beecher said.

The company has about 6,100 employees, including an increase of 500 since December 31.

"We feel our cost structure has been built to levels we can't (sustain)," Beecher said, adding that costs were about $345 million in the quarter.

A warning as expected
The warning was not entirely unexpected; B2B stocks have suffered along with the rest of the tech sector of late, and there had been rumors that i2 would preannounce quarterly results.

Last week, analyst Burt Hochfeld of Josephthal & Co. dropped earnings estimates for i2, noting that while the company had a "flurry of activity" at the end of the quarter, "this activity is likely to have been insufficient to allow i2 to meet its internal revenue goals or our previously revised license revenue target."

Hochfeld lowered first-quarter earnings estimates from 5 cents per share to 2 cents and full-year estimates for 2001 from 30 cents to 23 cents.

John Ederer of Pacific Growth Equities also said recently that, given warnings from several high-profile software companies, including Oracle, "there is wide speculation that many high-fliers--including Ariba, Commerce One, i2 Technologies, and Siebel Systems--will also report disappointing results for the March quarter."

Ederer said Oracle's warning could be a sign that major companies are cutting back spending on major high-tech projects. "If Oracle is any kind of oracle, it appears that all projects--especially high-ticket items--are being delayed as long as possible. One caveat may be for lower priced solutions that can be rapidly deployed and have a demonstrable return on investment," he said.

i2's strategy has not been to sell low-ticket items. But Hochfeld did note that such a strategy could help the company later.

"The simple fact is that i2's strategy of having a very broad product footprint, which engenders a high price point, is harder to sell in this environment, than is that of some of i2's competitors," he said. "On the other hand, a broad-footprint strategy typically leads to greater relative growth in more normal economic times."

The market slowdown
CEO Sanjiv Sidhu didn't shy away from the bad news, saying in a conference call that although "many people understand that (the shortfall) is based on market (conditions)...I would like to take full responsibility for that. Thus I apologize for not meeting our commitment."

Sidhu said that the slowdown primarily came from two classes of customers--established businesses that were rushing into e-business, and new markets and dot-coms.

"Though only a small percentage of revenue came from (those) buyers...buying in these categories slowed dramatically in this quarter," he said.

The company recognized about 100 deals at an average selling price of $2 million and had 10 transactions over $5 million in the quarter, Beecher said.

Sidhu said that customers' retrenchment was mainly due to overloading on their part, as opposed to problems with i2's offerings or pricing.

"People's hesitation is usually fear of the unknown rather than any specific thing like the price of the software or the complexity of implementation," he said.

"More and more, what we see is people who have project overload--they have projects going on and are worried about capacity of their own people. These are (easy to overcome) once we meet with the high-level executives. Many times we can demonstrate a return on investment in less than a year, or that the project will be cash-flow positive in a relatively short period of time," Sidhu said.