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J.D. Edwards's profits double

Revenue is up 44 percent for the business software maker, but a tight market and pressure from bigger firms could slow its surge.

    J.D. Edwards can't be stopped, for now.

    The Denver-based maker of business software doubled its profits for the year. It raked in $74.5 million, or 68 cents per share, in profits for the fiscal year ended October 31, a 100 percent leap from profits of $37.2 million, or 39 cents per share, the previous fiscal year.

    Revenue for J.D. Edwards was up 44 percent for the year, to $934 million from $647.8 million last year. License fee revenue was up 55 percent to $386.1 million from $248.7 million the previous year and services revenue rose 37 percent to $547.9 million from $399.1 million.

    But Rick Allen, the company's chief financial officer, warned the financial community that such high flying numbers likely won't last another year. He predicts that growth will slow to the mid-30 percent range next year, a trend affecting most of the enterprise resource planning application vendors like SAP and Oracle as the market matures.

    "I am projecting 35 percent for next year," said Steve Bonadio, analyst at the Hurwitz Group in Framingham, Massachusetts. "That is still great growth. If the economy is growing at 3 percent, that is still 10 times the [rate of growth for the]economy. People's expectations of this market are way too high. ERP is out of its high-growth phase. It is not a bad thing, it's just a fact of business. And they are not resting on their laurels."

    In fact, J.D. Edwards is set to announce a major revision of its OneWorld client/server application suite next week with significant enhancements to its functionality, but the firm is not releasing any details until then.

    Yet, finicky Wall Street did not react kindly to Allen's prediction of slowing growth despite the strong financial performance. J.D. Edwards stock tumbled 18 points in after hours and early morning trading today.

    Analysts blame the slide on investors getting spooked by Allen's predictions. Financial analysts, however, remain bullish on the company for the long run and expected it to rebound. Consensus estimate puts its stock at a solid "buy" rating with five of the 12 firms giving J.D. Edwards a "strong buy" rating including BancBoston Robertson Stephens in San Francisco.

    "We believe [J.D. Edwards] will be a long-term winner--the company is well positioned in the enterprise applications space, in our view," said Eric Upin, financial analyst at BancBoston Robertson Stephens in a report released this morning.

    Upin's office credited J.D. Edwards's "well-established" global position in the market, its "successful long-term track record, and strong product architecture" as major points for its continued success even as the ERP market matures.

    J.D. Edwards competes for the business of middle market companies, and primarily for manufacturers' business. The firm's software has traditionally run on IBM's AS/400 hardware, a particular favorite of conservative manufacturers. But J.D. Edwards several years ago rolled out its client/server OneWorld product to compete on the Windows NT and Unix platforms as well keeping it a major competitor in the market.

    So far, the firm has managed to avoid confrontation with market giant SAP but that is sure to change in the near future as SAP continues its push to sell into the lucrative middle market.

    "J.D. Edwards is making preparations for that battle and started by hiring the SAP executive that designed the marketing and sales programs to attack key competitors," said Chuck Phillips, financial analyst at Morgan Stanley Dean Witter. "Consequently, [J.D. Edwards] has a good idea of what the tactics are and can sell where SAP is not strong. SAP still doesn't have a proven model for reaching the mid-market and has had only moderate success selling on the AS/400 platform."

    The biggest advantage J.D. Edwards has in the coming year, which is shaping up to be one of the fiercest yet for the ERP market wars, is its establishment in the middle market which is where analysts predict most new revenue is going to come.