Users keep faith as i2 plans layoffs, other cuts

The supply chain software vendor is seeking a turnaround after reporting a big second-quarter loss.

Looking to bolster its sagging revenue and stop a string of quarterly losses, i2 Technologies Inc. is embarking on a major revamp of its supply chain management software and corporate structure.

Dallas-based i2 last week announced plans to slash its annual operating costs by about 30% through moves such as closing facilities and laying off up to 1,400 of its 4,800 employees. I2 also said it will move more of its development work to India, reduce the number of systems it supports and prune some of the less central components of its product line (see story).

The cost-cutting initiative follows a net loss of $757.4 million on revenue of $119.6 million during the second quarter. Sanjiv Sidhu, i2's chairman and CEO, said in a statement that the company is "intensely focused" on becoming profitable and hopes to get operating expenses in line with revenue by year's end.

However, some analysts said they have reservations about the future for i2 and its users.

Karen Peterson, an analyst at Gartner Inc. in Stamford, Conn., said the layoffs may pose a risk to i2's customer satisfaction levels, especially with users who are installing its software now. "What could happen is that those customers in active implementations could be hit with consulting turnover," she said.

'High-Risk Time'

Meanwhile, the supply chain applications sold by enterprise resource planning software vendors such as SAP AG and Oracle Corp. are good enough for many companies, Peterson said. To counter that, she added, i2 needs to better integrate its applications so they can interoperate without coding by users. "This is a high-risk time for i2," Peterson said.

An i2 spokeswoman said the company offers tool kits to help users integrate its products. But i2 is also doing in-house integration work, and Chief Marketing Officer Janet Eden-Harris said that one of i2's goals is to more tightly connect its planning and forecasting applications to its supply chain execution software.

Despite the rough times, users expressed continued faith in i2. Sandie Foster, a director of the Atlanta-based i2 User Group and marketing manager at IT services firm SBI and Co. in Salt Lake City, said she has "every confidence in i2" in light of the restructuring and management changes.

Foster cited the return of co-founder Sidhu as i2's CEO and the promotion of Sam Nakane to chief operating officer in April as positive steps for the company. Sidhu had given up the CEO job last year, though he remained as i2's chairman.

The quality of i2's support slid when the company expanded into new technology areas, said Ellen Martin, vice president of supply chain information systems at VF Corp., an apparel maker in Greensboro, N.C. But Sidhu's focus "always was customer service," she added. "They took a side street when he gave up the CEO position. I think they're now on the main road again."

VF, which makes products such as Wrangler and Lee jeans, runs i2's supply chain and factory planning applications and plans to install its demand fulfillment tool. Martin said she approves of i2's turnaround plan but wants to see the vendor deliver on its promises.

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The Skid Continues

i2's Problems

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The $757.4 million net loss for the second quarter was the company's ninth straight quarterly deficit.

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Revenue for the second quarter dropped 52% from last year's figure, with software sales plummeting from $106 million to $26 million–a 75% decline.

i2's Plan

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Cost-cutting actions will include cuts of about 30% of the company's operating expenses and the closing of some facilities.

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More development work is being shifted to India, and the number of hardware/software platforms i2 supports will be reduced.

Copyright © 2002 IDG Communications, Inc.

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