JDA executes in sales, but digesting the entire i2 legacy will be a challenging road ahead.
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JDA has gotten the best of i2, but also got some of their legacy headaches, as well. As they report their second quarter, those issues are beginning to surface.
First, we were excited to see the strategy on some key Demand Management capabilities such as Assortment Planning and Attribute-Based Planning. Assortment is building on the analytic capabilities of i2 and will have a multi-year rollout of very in-depth capabilities (see Demand Management for Retail).
And past i2 customers, with doubts removed about i2’s future, bought software licenses and maintenance at a very high rate, giving JDA a healthy sales number for Q2.
i2 always had an exceptional portfolio of advanced software capabilities that exceeded most others in the market, but frequently left doubts in the prospect base due to various legacy items, which JDA is removing. The solid management philosophy of JDA, in stark contrast to i2, assures long term buyers of stability and accountability.
However, just after the deal got done, Dillard’s was awarded $248M in damages. Dillard’s sued i2 for fraud, breach of contract, and breach of warranty. One wonders, since this was a Dallas courtroom, whether the local community was just fed up with not only i2, but also the plethora of high tech companies that dwell in the area, which once had broken the sound barrier in stock values (from Nokia, i2 and so many more), but are now virtually worthless. There are ongoing discussions in the local press, and even the cab drivers in Dallas who owned i2 stock gabbed about their stock portfolios during heady times. Locals know these stories well. I did have that feeling that a local jury might be slightly biased when I heard the verdict, though I don’t know the composition of the jury.
JDA’s perspective (written by Hamish Brewer), which seems compelling, is that Dillard’s suit was initiated after using the software for several years (watch out algorithm developers!), and still uses i2 software today. This may make a good appeal.
JDA missed it on operating expenses. Here was another area where they may have been overly optimistic on post merger budgets, optimization and streamlining opportunities, etc. Although we did think that they took a very conservative approach in their software release rollouts over the next few years, not falling for the 'we can do it all now’ pressures. Various accounting issues, which were discovered post merger, also impacting cash and share price, are still being worked through. But we are pretty sure that these glitches will not appear going forward.
The Dillard’s issue could have an impact on the cash position of JDA for some time, although one hopes that an appeal will make some adjustments in the award.
Ultimately, JDA’s selling might, combined with a unique development team, continue their strong growth in license and services, neutralizing these issues over time and leaving JDA the strongest Supply Chain provider in the worldwide market.
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