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Ariba matches lowered earnings estimates

The business-to-business software company matches reduced earnings expectations for the second quarter, but sees revenue fall about $10 million short of analysts' expectations.

Business-to-business software company Ariba matched reduced earnings expectations for the second quarter, but saw revenues fall short of analysts' expectations, the company said Friday.

But investors cheered the news anyway, sending the stock up 97 cents to $8 in morning trading.

Revenue for the second quarter was $90.7 million, up 126 percent from the year-ago quarter, but short of the $109.87 million predicted by analysts polled by First Call. Ariba, which had lowered earnings expectations earlier this month, reported a net loss excluding certain special charges of $48.3 million, or 20 cents per share, matching estimates.

Shares were off 18 cents to $6.85 in premarket trading on the Island ECN electronic trading network.

Earlier this month, Ariba delivered a warning. It announced it would fall short of sales and earnings predictions, lay off about a third of its staff, and cancel a planned acquisition of Agile Software.

Ariba makes procurement software that helps companies automate purchasing. To that package, the Agile acquisition was supposed to add supply-chain management--software that helps companies and their partners add, update and manage products throughout the manufacturing supply chain.

The company took a charge of $33.6 million related to equity investments and costs related to the cancelled Agile acquisition during the quarter.

The charges include a write-off of $24 million to discount investments made in privately held electronic marketplaces--a market the company does not see improving anytime soon.

It also wrote off $1.4 billion in goodwill related to its acquisition of marketplace company Tradex. "Given the limited opportunity for public marketplaces, its value has been impaired and we are writing it down," the company said. Ariba acquired Tradex in December 1999 for $1.86 billion.

"The slowdown in both the economy and technology spending impacted our business more dramatically than we had expected," Chief Financial Officer Bob Calderoni said in a statement.

"While the current uncertain market conditions provide low visibility going forward, we took decisive and immediate actions to realign our expense structure to reflect today's economic realities," he said. "We believe a strong focus on operational efficiencies and financial discipline will help us weather the current environment and should position us well as the economy recovers."

Calderoni said revenue for the third quarter should remain the same or decrease but noted that it's dependent on there being "no change in IT spending."

The company could return to a break-even point once revenue reaches $105 million to $110 million, he said. The company was able to lower that from earlier projections of about $150 million due to cost-cutting.

But executives were not putting any time frame on a return to profitability.

"The question I constantly get asked is, "When is it going to turn around? Have we hit the bottom?" and I don't think anybody knows the answer," CEO Keith Krach said. "Our strategy is to be very prudent in terms of business planning functions. (We're) not going to forecast an uptick till we see that in revenue numbers."

Competitors warn as well
Ariba's news was sandwiched by warnings from Ariba competitors i2 Technologies and Commerce One, although neither warning was as steep as Ariba's.

Last night, Commerce One reported a loss $25.5 million, or 11 cents per share, in the first quarter, compared with a loss of $14 million, or 9 cents per share, in 2000. That matched the lowered expectations set by Wall Street analysts, according to First Call.

Commerce One posted revenue of $170.3 million, up from $35 million a year ago and roughly even with analysts' expectations of $170.54 million.

That company's relationship with German software giant SAP was met with mixed opinions from analysts. The partnership guarantees Commerce One a good chunk of business and has been instrumental in helping it stave off some of the problems faced by its competitors. SAP now accounts for nearly 50 percent of license fees during the quarter.

While some analysts applauded the deal, pointing to the additional revenue, others expressed concern about an imbalance of power. SAP, which normally prepays royalties one quarter in advance to Commerce One, did not do so this quarter, causing deferred revenue (revenue received in advance of sale) to drop by as much as $35 million or more, ING Barings analyst William P. Lanzon said.

"Over the past three quarters, this relationship has developed into somewhat of a double-edged sword," he wrote. While without SAP, Commerce One would not have "the comprehensive functionality, incomparable distribution, international presence, or the 13,000 fertile prospects that it would need to compete...SAP clearly has complete control as to the timing of these royalty flows, resulting in substantial revenue and bookings volatility," Lanzon said.