Continued customer deferrals and a fiercely competition environment in the business applications software market weighed heavily on companies' results and their executives' outlook for the rest of the year – with a few upbeat exceptions.
US software giant Microsoft sent ripples through the European market with news that it picked up Danish mid-market business applications vendor Navision for $1.3 billion. Navision justified its hefty price tag by putting in a strong quarterly performance and claiming progress in grabbing market share. Licence revenues jumped 20% to DKK243 million ($29.2m) in the third quarter to March 2002, pushing total sales up 17% to DKK380 million ($45.6m). However, a rise in marketing activities and the acquisition of distribution companies pushed up costs. As a result, net profits fell 32% to DKK24.7 million ($3.0m). The group added that it was on track to meet its target of 17% growth in full year sales.
London-listed Sage delivered even stronger top-line growth. Revenues at the accountancy software specialist – whose own accounting practices have been called into question – grew 22% to £279.8 million ($400.1m) in the first half of its financial year. Net profits rose 10% to £44.9 million ($64.3m) as a result.
However, Sage is widely regarded as vulnerable to heightened competition following Microsoft's full-scale entry into the European business applications market. Analysts also fear that the UK-based company is relying too heavily on cross-selling into its installed base with little focus on winning over new customers. There has been some successes with cross-selling initiatives, but Interact, the sales force automation software it acquired in 2001, proved a disappointment in this respect. The business notched up sales of £26.0 million ($37.2m), some 30% below earlier expectations.
Sweden's IFS joined the chorus of companies complaining of customer deferrals in the first quarter. However, it noted "a certain degree of recovery" in UK and US markets, and talked of bigger contracts in Europe. Licence sales climbed 12% to SEK304 million ($27.4m), pushing total revenues ahead 2% to SEK744 million ($67.0m). IFS also managed to turn a profit of SEK14 million ($1.3m), compared to losses of SEK94 million ($8.5m) in the comparative period of 2001, thanks to lower costs.
In contrast, lacklustre second quarter results from US vendor JD Edwards suggested little improvement in US corporate demand for business applications. New licence sales slipped 13% in the quarter to April 2002. For the first half of its financial year, the picture was even bleaker – licence sales were down a hefty 32% to $98.0 million. Total sales for the latest quarter, buoyed by higher services revenues, nudged ahead 1% to $223.6 million. However, a $7.8 million write-off related to "third party product arrangements", pushed the group $7.5 million into the red. This compares to profits of $2.5 million in the same period in 2001.