Finance & Investment ClubFall 2012

Supply Chain Management Software and Services

 

2

Supply Chain Management Software and Services

Industry Rating:

Industry Summary

Positive

Key Factors:• Cloud based software is a new field that is experiencing rapid growth• The cheap costs and growing security of cloud servers are drawing in more customers• Supply chain management is a key component in the growing internet retailing sector

 

3

Industry Definition Firms in this industry specialize in supply chain management (SCM) solutions that provide

strategic planning, optimization, and execution for business processes across a wide range of industries.

These firms develop, deploy, and maintain a variety of software and services that are highly tailored and industry-specific.

Key Companies of Focus

Descartes Systems Group(NASDAQ: DSGX)

Market Cap: 558.95M

Aspen Technology, Inc.(NASDAQ: AZPN)Market Cap: 2.31B

SciQuest, Inc.(NASDAQ: SQI)

Market Cap: 411.06M

American Software, Inc.(NASDAQ: AMSWA)Market Cap: 227.94M

Manhattan Associates, Inc.(NASDAQ: MANH)Market Cap: 1.17B

JDA Software Group, Inc.(NASDAQ: JDAS)Market Cap: 1.42B

E2open Inc.(NASDAQ: EOPN)

Market Cap: 438.47M

 

4

45% 22%

7%6%13%3%

4%

Breakdown By 2011 RevenueJDAS MANH AMSWA DSGX AZPN SQI EOPN

Technology Goods and Services Sector Summary Breakdown

Technology77243.6B(100%)

Information Technology10477.9B(13.6%)

Business Software and Services4253.1B(5.5%)

Application Software and Services640.0B(0.83%)

Industry Breakdown by Market Cap ($BN)

 

5

 

5

SaaS SubscriptionProfessional Services

FY2011 Revenue Segments

16%

74%

9%20%

74%

6%

27%

73%

7%

93%

69%

31%

Software Licensing Other

81%

19%

62%

38%

 

6

Revenue Generation

Develop Provide Maintain

Software Package

Software-as-a-Service

Customer

License Fee

Subscription Fee

Additional Fees

Training and support

Technical Maintenance

 

7

Trends

IT and Software Spending Growth

Rising E-Retail Sales

Increasing Adoption of Software-as-a-Service (SaaS)

Platforms

 

8

Trend I: SCM Software Spending Forecast

2008 2009 2010 2011 2012e 2013e 2014e 2015e0

5001,0001,5002,0002,5003,0003,5004,0004,5005,000

IT and Software Spending Forecast

Total IT Spending ($BN) Software Spending ($B)

($BN)

CAGR 2.8%

CAGR 5.4%

IT2011: 3.6 TN2015: 4.1 TN

2008 2009 2010 2011 2012e 2013e 2014e 2015e0

2

4

6

8

10

12

Worldwide SCM Software Spending($BN)

CAGR 7.5%

SCM software prime consumers include North America and Western Europe with nearly 79% or market revenue.

Asia/Pacific IT spending is on pace to reach US$743 billion in 2013, a 7.9% increase from 2012.

Shift towards diversified suppliers

Increasing complex and fragmented supply chains due to globalization and outsourced manufacturing

Software2011: 268 BN2015: 334 BN

SCM Software2011: 7.7 BN2015: 10.33 BN

IT

Software

SCM Software

Source: Gartner Research – Worldwide Supply Chain Management software growth

 

9

Trend II: SaaS-based Technology Expected to Gain Momentum

2008 2009 2010 2011 2012e 2013e 2014e 2015e0369

1215182124

SaaS Growth Worldwide

CAGR 19.37%

($BN) Low cost of installation

Larger audience outreach including small and medium-sized enterprises

High demand for productivity in developing countries

Eastern Europe CAGR: 25.02 %

Latin America CAGR: 26.76 %

2008 2009 2010 2011 2012e 2013e 2014e 2015e100.00

1000.00

10000.00SaaS Growth in Asia/Pacific($M)

CAGR 27.8%

Source: Research and Markets: Global Supply Chain Management Software

 

10

2009 2010 2011 2012e 2013e 2014e0

200400600800

100012001400160018002000

917 1,021 1,115 1,229 1,356 1,495

155173

192213.690883166286

237.832258064516264.700964954367

US Online and Web-influenced Retail SalesWeb-influenced Retail Sales Online Retail Sales

Trend III: E-Retail as a Growing Channel of Sales

6% 7% 7% 7% 8% 8%% of total US retail Sales

$BN

Consumers rely more and more on online research before purchases.

Consumers use Brick-and-mortar stores to sample and then buy online at a lower price.

Three product categories (computers, apparel, and consumer electronics) represented more than 45 percent of online sales($67.6 billion) in 2011

Convenience, Cost, and Speed are important strategies for online retail

90 percent or more

75-89 percent

75 percent or more

50-74 percent

30-49 percent

15-29 percent

1-14 percent

None

Online Research as Part of Overall Shopping

2010 2011

21%

35%29%

24%

15% 17%13%

8% 8%

1%

29%

(% of respondents)

15%

2005 2006 2007 2008 2009 2010 2011 2012 -

200 400 600 800

1,000 1,200 1,400 1,600

Cyber Monday Revenue

Source: Forrester Research - Forecast Online Retail Sales; Marketing Charts

$M

 

11

Risk Heavy Competition from large ERP vendors developing new SCM technologies − ERP vendors can devote more resources to creating SCM software and services− Oracle and SAP are slowly developing SCM technology which increases buyout risk for smaller companies

Highly complex and sophisticated software may contain defects and errors that are hard to detect and may lead to software inaccuracy

− Defects or errors in software lead to inaccuracy and hurt both the customer and company’s revenue and reputation.

Research and Development activities may not generate significant returns− Product development activities are costly and recovering investment in product development may take a

significant amount of time.− Cannot estimate with any certainty the revenue from R&D investments.

Large portion of revenue comes from professional services, which is very reliant on prior sales of software

− If software sales stagnate, professional services revenue will consequently suffer.

 

12

Industry Porter Five Forces

RivalryHigh

SuppliersLow

New EntrantsHigh

BuyersLow

SuppliersLow

Low Cost of Production

In-house production of software Difficult for customers

to drive down prices on very specialized software

Complex software for superior supply chain results

 

13

Supply Chain Management Software and Services

Industry Rating:

Industry Conclusion

Positive

Key Factors:• Cloud based software is a new field that is experiencing rapid growth• The cheap costs and growing security of cloud servers are drawing in more customers• Supply chain management is a key component in the growing internet retailing sector