Despite being one of the world’s largest software vendors people are often unaware of the scale of the Infor organisation and what it does. The brands it owns, such as, System 21, SunSystems, SSA , Baan, Maapics, Geac, Extensity and Pegasus are instantly recognisable as some of the most popular ‘workhorses’ of the manufacturing, accounting and business information systems markets. Jim Schaper, Infor’s CEO takes time out to discuss the current condition of the marketplace with Gary Simon, FSN’s managing editor.
Infor still on track says Jim Schaper Infor’s CEO
The timing of our interview coincides with a turn in fortunes for the software industry. Buffered by long term projects that have only recently begun to wind down the information technology sector has been one of the last segments of the US and European economy to head into recession.
“We are not unlike our competitors and are obviously seeing across the board weakness but we may be less affected than some,” says Schaper. “A software company has to look at performance in three broad areas, [namely] licence revenues, professional services and maintenance income and typically during a recession one expects net new customers and licences to be hardest hit. But our mid-market focus and concentration around high volume/low value transactions means we are less affected than many of our competitors such as SAP.”
“So far this recession has been consistently inconsistent! Net new customers in recent periods have been up and so have licence transactions overall but we have definitely seen a 50 percent decline in larger transactions above $0.5 million. Larger deals are slowing down faster than smaller deals.” But as Schaper points out, Infor, which is privately held, is less dependent on larger deals.
Although Infor’s very rapid acquisition strategy caused raised eyebrows at the time it is clear that its broadly crafted customer base has protected it from the most chilling effects of recession. Although professional services are “flat”, maintenance revenues are not exhibiting any weakness as customers make a flight to safety in more difficult trading conditions. “Customers want to make sure that the systems on which they depend are stable, properly maintained and supported,” adds Schaper, pointing to high customer retention and other customers returning to the fold after a period of absence.
Anecdotally there are signs that companies are adopting a more conservative approach. “They are looking to add additional functionality to existing systems where possible. Projects with tangible return on investment and with reasonable payback or demonstrable reductions in operating costs are winning favour.” As a result Infor’s performance management and asset management business lines, which provide better visibility of trading and hard dollar returns, are doing well.
Inevitably these are tough times. Rapid consolidation in certain industries such as financial services together with headcount reductions across the board directly affects technology spending. But this time around Schaper sees a permanent change in the business landscape.
“The last downturn in technology was as a direct consequence of the bursting of the dot com bubble and the IT sector led us into recession. This time around the IT sector is a lagging indicator and the recession is much more consumer driven. I think we could be in for a much longer downturn.”
“There has been massive consolidation in the financial services market and we are going to see a permanent dislodging of jobs. Where these jobs turn up again I don’t know. What is clear is that the technology market continues to mature; there is reduced technology spending and smaller markets. I think we are going to see a second round of serious market consolidation, a smaller number of companies and higher unemployment.”
Schaper points out that Infor is not unlike its customers when it comes to making economies. “We have had to look critically at our internal systems. After the acquisitions we had around 100 back office systems which we will have reduced to just one in March. So we can do a lot more with much less and the associated jobs are not coming back. Technology is merely an enabler, it didn’t force out the jobs.”
According to Schaper most of the U.S. public companies in the IT sector have announced redundancies of around 10 percent or cost reductions at around the same level, but Infor has made relatively minimal reductions. “Most of the larger technology companies have taken action but it’s tough to say whether this is the last.”
So who are going to be the technology winners and losers coming out of this recession? Schaper believes that business scale is vital to giving sufficient geographic and product diversity. “You can never make up for lack of scale. The bigger guys get bigger and the smaller guys go away,” he says. “Acquiring and integrating is key, as well as retaining customers if you are to continue to make adequate returns for shareholders – whether you are private or public. The smaller you are the more difficult it is to invest in infrastructure and offer customers the integration and choice of applications. Although the big will get bigger I think the days of growth in excess of 10 percent are behind us. SAP is beginning to make successful acquisitions and Oracle has performed well. They are both great companies, but the mid-market is still underserved. Infor will thrive and so will Sage and Microsoft – the rest are consolidation targets.”
Against this backcloth Infor’s strategy has not changed and, says Schaper, its operating model remains resilient and flexible. “We have around $1.1 billion in maintenance receipts and therefore significant income from recurring revenue streams which gives us stability. We also generate significant profit margins and operate without the burden of being a public company. We are still investing in our componentised functionality and SOA (Services Oriented Architecture) and absolutely on track to deliver both. We’ve tweaked our cost structures and looked at accelerating certain projects but we are not slowing down at all.”
Infor’s strategy is on track but is Apple a lesson in how easily an organisation can be blown off course? “I ‘m not an expert on Apple but it is a bit surprising that one person’s departure could cause such a change in share price. Apple is Jobs [Steve Jobs] and Jobs is Apple – it’s a unique situation I can’t imagine any other IT business that size being similarly affected. The closest would have to be Bill Gates at Microsoft but he’s been out of it for some time and if Larry Ellison left Oracle one might see some effect. I think people may be underestimating the management team at Apple. It’s typical American over-reaction – we either go hard left or hard right. If I go tomorrow the business will carry on I’m quite sure. Infor has a good management team that makes most of the decisions. It’s not down to one man!” says Schaper.
