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J.D. Edwards stumbles

J.D.Edwards once appeared to be among the few survivors of the recent business software market downturn, but not anymore.

By targeting its business to small to midsized companies, J.D. Edwards appeared to be among the few survivors of the recent business software market downturn.

No more.

The Denver-based company last week warned it expects to earn 2 to 4 cents per share for the quarter-ended January 31, a far cry from the First Call analyst consensus estimate of 9 cents per share. After the announcement, shares of the company's stock fell to nearly a quarter of their value to a 52-week low of 13.562. Shares were trading at $15 today.

The firm expects to announce actual quarter results next Tuesday.

Company executives said a host of internal and external factors have hurt profitability, including slower-than-expected license fee growth in the first quarter.

Despite the successful introduction of the company's OneWorld business software, analysts said J.D. Edwards has been hit hard by falling business in Latin America and Asia, a spending slowdown as companies prepare computer systems for the year 2000, an internal sales force reorganization, an aggressive hiring program that had less immediate impact than expected, and more competition in the Windows NT and Unix market.

The company said it expects quarterly revenues of between $218 million and $223 million, an increase of between 22 and 25 percent from $178.3 million a year ago, but much slower growth than in recent years. In the third quarter of 1998, the company's revenues grew 68 percent compared to the same quarter in 1997.

After its earnings warning last week, BancBoston Robertson Stephens, Credit Suisse First Boston, Prudential, and BT Alex Brown all downgraded their ranking of J.D. Edwards, some admitting to making a bad call on the stock.

In a First Call research note, BancBoston Robertson Stephens said the urgency to buy Enterprise Resource Planning systems has considerably diminished from two quarters back.

"Overall market factors appear to have finally caught up with the J.D. Edwards story, representing the last domino to fall," the note said. BancBoston lowered its overall fiscal 1999 growth estimates for the company to 20 to 25 percent from 34 percent, though noting the company is still a leader in the AS/400 market, which has an estimated worth of up to $2.5 billion. The company also noted that growth in the midmarket, as well as expansion expected in the NT/Unix space, bode well for J.D. Edwards.

BT Alex Brown, which cut its rating on the company to market perform, said it expects J.D. Edwards to close many deals put off in the first quarter over time, but at reduced size over longer payment periods. The company will have a hard time bringing spending into alignment with top line growth in the coming quarter, the firm said in a research report, though it said it will review its assessment in several weeks when the company's management is expected to announce a recovery plan.

With its recent earnings warning, J.D. Edwards joins SAP, PeopleSoft, and Baan. Though these larger rivals focus on business from larger corporations, they were hit first by an overall ERP market slowdown that analysts thought J.D. Edwards might avoid.

To date, PeopleSoft and Baan have both announced layoffs and restructuring plans after poor quarterly earnings announcements.

While overall growth is slowing down, SAP has added hundreds of employees to its ranks over the past year. The company is revamping its sales strategy and is holding its ground with a line of business applications that can be installed independently or with the company's flagship R/3 system.

SAP's shares this week are trading about 50 percent lower than the company's high last summer.