The Naz is down. The Naz is up. The Naz is down. Yawn.
If you're tired of all this irrelevant noise, and you hunger for some real economic news, doggone it you've come to the right place. Buried deep in a recent Washington Post piece on European currency was a widely overlooked story with significant business impact. Here in Breaker land, though, we don't miss a thing, and today we spotlight this epic story for you. Yes, ladies and germs, we're here to tell you that it's true -- the Vatican has officially abandoned its own currency, adopting the single currency of the European Union. Believe it or not, according to the a Vatican spokesman cited by the Post, "the Holy See will follow the same introduction schedule as the Eurozone countries."
Now that's scintillating market news. So enough already about the Nasdaq.
More seriously, though, we poo-poo market volatility so often that even the longtime Foolish faithful have surely grown tired of our righteous, business-focused investing sermons. These are the columns that encourage you to ignore all this short-term market noise. No doubt you've had it up to your ears lately, so I won't lay another heavy speech on you today. Instead, I'll extract two business-focused themes from the current Nasdaq market volatility -- ideas that are actually relevant to long-term business performance and not just stock prices. Back on topic, I'll weave these twin threads plus a little extra into an argument that favors Rule Breaker status for the king of supply-chain planning software, i2 Technologies (Nasdaq: ITWO).
Thread One: important, emerging industry
Contrary to popular belief, the essence of the much-heralded "new economy" is not the Internet, nor has it ever been. In fact, the authentic sea change is not even found in technology per se, or in the stock market, but in the structure of corporations. It's not even a new concept. Coca Cola (NYSE: KO) demonstrated new-economy acumen years ago when it spun off its bottling operations. Indeed, the defining concept of the new economy isn't new at all, but its scope of influence surely is.
Yes, the true new economy is marked most clearly by a corporate flexibility derived from a dramatic de-emphasis of weighty, tangible assets. These are the very same assets -- factories, office buildings, stores, inventories, unskilled labor, and even large research divisions -- that established weighty market values, in days gone by, for the corporate giants that owned or otherwise controlled them. Right or wrong, today's new-economy gurus view these kinds of assets as a business cancer -- dead weight dragging down the fortunes of old-style corporations.
Networking systems king Cisco Systems (Nasdaq: CSCO) epitomizes today's more nimble corporate leaders. Cisco doesn't actually make all that much. It outsources as much of its production as it can, focusing instead on the higher-margin interface with the customer. In fact, this depth of customer empathy is placed above even technical prowess, a surprising twist in the high-tech world. Cisco outsources its research and product development -- essentially -- allowing small high-tech startups to shoulder unproductive costs, swallowing them whole when these little guys develop solutions that meet Cisco customer needs, and washing their hands of those that don't.
On the other end of the spectrum from Cisco are AT&T (NYSE: T) and Lucent (NYSE: LU). These comparatively heavy corporate sleds have been unable to negotiate the rapid changes in technology markets. Both have found themselves way behind, suddenly saddled with assets that are good only for generating low-margin profits, if they are still useful at all. The recent breakup of these two companies into a slew of independent, component businesses is a clear attempt on the part of the old Ma Bell to hop onto the new-economy bandwagon.
Beyond technology, however, there is another dimension of rapid change -- the one that is staring us down eyeball-to-eyeball as we speak. Economic cycles, from boom to bust, are certainly not new but they do present another business hurdle that is more easily leapt by leaner, new-economy corporations. In particular, the initial impact of most recessions is the kind of inventory glut we've been hearing about so much lately. When you combine heavy inventories with today's pace of technological change, you get the potential for some pretty weighty corporate losses -- another argument for new-economy business models. Let somebody else eat the inventories!
So what's all this got to do with i2 Technologies?
Plenty. In my mind, the most tangible, lasting outcome of new-economy business models should be a reduction in inventories across the board. Certainly, it's true that consumers are emotional beasts and demand will always be subject to abrupt changes, but there is still plenty of fat in corporate supply chains. All of today's big corporate software sectors -- customer relationship management, efficient Web-based corporate buying, Web-selling/marketing, and back-office systems for production planning -- are focused on this optimal alignment of customer demand with corporate supply.
The glue that holds it all together, though, is supply chain software that takes in all this new customer information, accurately predicts future demand, and optimizes inventory, production, and shipping schedules to meet this demand in true "The Price Is Right" style -- as close as possible without going over. It's really more than software that does the trick. Effective, time-tested algorithms for prediction and optimization have to be embedded in the code, and in the market for this kind of supply-chain intelligence, i2 Technologies is the unquestioned leader.
Improved supply-chain planning is at the heart of the new economy and i2 is at the heart of supply-chain planning. In many ways this company can be considered the brains behind a landmark change in the world of business. If that's not breaking rules, I don't know what is.
Where to from here
Well, what do you know? It looks like market volatility Thread One has guided us through the first Rule Breaker criterion -- important, emerging industry. In tomorrow's column, I'll quickly cover Thread Two, the link between today's economic turbulence and my Breaker candidate, i2 Technologies. From there, I'll launch into a full Break Down of the company according to the remaining Rule Breaker criteria. Stay tuned!
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