RealTime IT News

Downtrodden i2 Still A Winner

It hurts enough when your company's shares gets slammed by the market after an earnings warning. It's especially painful, however, when that quarterly warning comes from a customer who in large part blames your product for its shortfall.

That's the unfortunate spot supply-chain software vendor i2 Technologies found itself in Tuesday after Nike said Q3 earnings would be down about 25% from previous forecasts.

The sporting-goods equipment maker said after the market closed on Monday it has been having problems with excessive inventories and delayed orders in its footwear division, which uses i2's supply-chain management system. Nike said this will contribute to lower-than-expected revenues and profits in Q3.

Here's a conference-call comment from Nike CEO Philip Knight regarding alleged glitches in i2's supply software: "This is what we get for our $400 million?" You won't see that blurb in an i2 advertisement any time soon.

The market's reaction was definitive and dramatic, as ITWO shares plunged 22.4% to $27.56, or mere spare change above their 52-week low of $27.31.

I think the market overreacted, in part because it came to the premature conclusion that Nike's complaint was indicative of some major flaw in i2's technology and support. That may not necessarily be the case. According to i2 CEO Sanjiv Sidhu, there were problems with how Nike was using the supply-chain vendor's product. "The software wasn't implemented well," he told Bloomberg News. Further clouding the picture is the slump in U.S. footwear sales.

It's tough to judge a situation like this from the outside. But I suspect as this news fades, it will be more than outweighed in investors' minds by i2's much larger and more numerous successes, such as the huge online trading exchanges its software runs for customers in the automotive, aviation and computer parts industries.

Nonetheless, its short-term impact could shave some totals from this quarter's revenues, which already are forecast by ITWO to fall 4.5% short of Q4 sales of $377.9 million. Along with the larger economic unease, that could be enough to weigh down shares into the spring.

Over the long-term, though, I still like i2 as one of the few winners in the B2B software space.