i2 Into Something New (News) August 20, 1999

i2 Into Something New

By Dave Marino-Nachison (TMF Braden)
August 20, 1999

The lure of Internet commerce has gotten ahold of supply chain management software developer i2 Technologies (Nasdaq: ITWO). The company reportedly told analysts at a Goldman, Sachs & Co. conference that it's developing partnerships with the likes of Hewlett-Packard (NYSE: HWP), IBM (NYSE: IBM), and Johnson & Johnson (NYSE: JNJ).

According to press reports emanating from the conference, i2 will be helping HP to sell computers, IBM to sell chips and manufacturing services, and Johnson & Johnson to establish a health-related website. This is a departure for i2, a company that counts mostly on software sales and service revenue.

The news suggests that i2 has been able to ingratiate itself with its business partners to the tune of potentially significant future profits. Earlier this month, i2 and IBM announced plans to work together to develop new supply chain products for their customers looking to get into e-commerce; Delta Faucet and Italian car parts company Carraro Group were among the first to sign up.

So if it's good enough for IBM to sell, it's good enough for IBM to use, right? Let's hope so.

HP and i2, meanwhile, recently launched an e-business portal meant to be a "virtual trading community" for electronics distributors based on i2's RHYTHM system.

If these arrangements shake out as i2 hopes, it stands to benefit considerably from the high-margin business of online transactions. The opportunity to license the technology it's developing with the likes of Big Blue and HP can only be helped by the implicit (and quite possibly explicit) endorsements of the two Dow components.

When it comes to healthcare and Johnson & Johnson, i2 appears to be heading down an uncertain path. "We don't have much experience in the healthcare industry," i2 Vice President Jeff Simpson admitted to Bloomberg News.

But the opportunity to partner with an industry power like No More Tears Inc. -- combined with a market environment that has given companies like Healtheon (Nasdaq: HLTH) and (Nasdaq: KOOP) big-dollar market valuations in the time it takes to sneeze -- was probably too good to pass up.

With further details left to be disclosed, i2 shareholders -- their stock just about flat in 1999 -- were probably right to quietly applaud this morning, and they did so by sending the shares up just a few percentage points as of this writing.

Over the past five years, however, operating margins have shrunk while cost and expense growth (on a compounded basis) has outpaced sales growth. i2 hopes that its new joint ventures will reverse these trends.

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