Intelligence Sees Smart Gains
Written BY J. Bonasia
Investors are skittish about software makers after the drubbing that the field took in 2001. But some analysts say it might be smart to keep an eye on business intelligence.
BI and its close cousin, analytics software, aim to boost a company's sales and cut costs. Companies need that in this economic downturn.
U.S. Bancorp Piper Jaffray analyst Jon Ekoniak says he expects BI to beat most software sectors in 2002.
"The whole analytics space is just starting to get its surface scratched," Ekoniak said. "This will become one of the most strategic and fastest-growing segments."
BI systems work with analytics programs, which crunch sales data. Analytics zero in on sales by product type or region, so companies know where they're strong and where they lag. Managers track desktop scorecards to spot strengths and weaknesses.
The software also helps a company streamline its supply purchasing.
Sales of BI and analytics software are expected to rise to $15.2 billion in 2005 from $5.96 billion in 2000, says International Data Corp.
No Clear Leader
And it's a fairly wide open market, says IDC analyst Dan Vesset. "No one vendor has more than 7.5% of the combined market," he said.
The time is right for BI and analytics software, says Ekoniak. That's because firms spent millions of dollars in the past decade for software to automate their sales and operations. Now they need analytics to sift through all those data.
"These companies have become data-rich but knowledge-poor due to information overload," he said. "This software helps them leverage their existing investments."
In the past, tech analysts ran reports and then delivered them to business managers. BI lets managers tap the data themselves.
Bernard Liautaud, chief executive of Business Objects SA (BOBJ), a BI leader, likes the way his market shapes up.
"In the next 10 years there will be a shift, because companies need to become more intelligent," he said. "It's about understanding the value of customer data as it comes across all these different systems."
Investor's Business Daily gives Business Objects' stock an overall rating of A+, but the company faces challenges. Large business software makers Siebel Systems Inc. (SEBL), PeopleSoft Inc. (PSFT) and SAP AG (SAP) are getting into BI and analytics, which some companies and analysts consider one and the same software. In October, Siebel said it will buy analytics firm nQuire Software Inc. PeopleSoft and SAP are adding analytics.
Research firm Gartner Inc. expects the BI market to thin this year.
But Goldman Sachs Group analyst Tom Berquist says there's enough demand to support the large companies and smaller pure-play BI vendors like Business Objects and Informatica Corp. (INFA)
"Pure-play vendors should tend to win in sectors where there are large amounts of data and many disparate data sources," Berquist wrote in a report last month.
Berquist is bullish on BI. "We expect these more positive trends to continue in 2002, making (this) somewhat of a contrarian sector," he wrote. He expects most software sectors to be down this year.
BI software already is critical to some data-intensive industries, such as telecom and the airlines, says Mike Shroeck of PricewaterhouseCoopers Consulting.
"This market continues to run hot and it should get even better as the economy improves," he said.
Shroeck recalls a long-distance phone carrier client that started using BI software to help it keep its customers from switching to other carriers. He wouldn't name the firm, but said it had been losing 70% of its subscribers to so-called churn. In its first year using BI, it cut that rate to less than 50%.
The budding BI sector spans several areas. Informatica and Ascential Software Inc. (ASCL) are known for ETL software. That is, it extracts, transforms and loads data.
Stocks Rising
Hyperion Solutions Corp. (HYSL) and Microstrategy Inc. (MSTR) draw from an OLAP background, short for online analytical processing. OLAP software sorts through data for trends.
Business Objects and Cognos Inc. (COGN) make query and reporting systems that deliver the analysis to business users. They also offer OLAP.
Rivals are starting to overlap. Hyperion on Tuesday said it will embed query and reporting software from Crystal Decisions Inc. into its own OLAP products.
Privately held SAS Institute Inc. of Cary, N.C., is another major BI firm. It's known for its data mining features, which also help companies get the most out of their vast amounts of data.
Many BI stocks remain buoyant. IBD's enterprise software group ranks No. 13 out of 197 industries, based on its stock's price performance over the last six months.
Business Objects has made a profit each year since 1993. Cognos reported third-quarter earnings of 15 cents a share, almost double its second-quarter earnings. Its stock is up from 12 in September to about 25.
Hyperion Chief Executive Jeff Rodeck says his firm's five business units have been trimmed to two since September. Shares have risen above 20 from 12.50 in October.
Rodeck says the weak economy has changed companies. "Every department head is now tasked with profitability," he said. "That creates a need for distributed analytics all through the company."
