IBS Under Pressure in Q3, Divests Brasilian Unit

Published: November 10, 2008

by Timothy Prickett Morgan

As readers of The Four Hundred are aware, Swedish ERP software maker International Business Systems, has been rejiggering its management and business model in an attempt to get its midrange hardware and application software revenues growing again. The third quarter ended in September proved difficult for IBS, as it was for most companies thanks to the economic crisis.

In the quarter ended in September, software license sales fell at IBS by 12 percent to 89.4 million Swedish krona. (SEK is the accepted abbreviation for this currency, which is valued at about 13 cents as we go to press on Friday.) Professional services sales at IBS dropped by a smaller 7 percent to 259.4 million SEK, but most dramatically, hardware and other sales at IBS fell by 24 percent to 73.2 million SEK. A lot of IBS' sales comes from System i and Power System i platform sales, even though its applications have been ported to Java. The company's IBS Enterprise applications are also available in RPG, and while the company does have 5,000 customers and most of them are on an IBM proprietary midrange platform, in late September IBS picked Windows running Java as its strategic platform going forward. IBS has no intention of dropping support for the i platform, but it will use the Windows-Java combo on X64 iron to chase new customers.

In any event, for the three months from July through September, IBS had total sales of 422 million SEK, down 11 percent, and gross profit of 135.8 million SEK, down 26 percent. The company posted a loss of 110.6 million SEK, which was obviously not as good as the miniscule profit it had in the year-ago quarter.

The situation clearly worsened for IBS as the third quarter rolled on. For the first nine months of the year, IBS had software license sales of 283.7 million SEK, down 8 percent, with professional services of 845.2 million SEK, down 4 percent. Hardware and related sales were down 19 percent, to 293.2 million SEK, in the nine months. The company had a loss of 172.9 million SEK, considerably larger than the 24.7 million SEK loss from the first nine months of 2007.

IBS said that several customers deferred signing of contracts in the third quarter, which hurt sales, and not only that its System i sales declined, but that profit margins on hardware dropped to 20 percent, down from 24 percent a year ago.

Interestingly, IBS said that while it is working on its Windows/Intel port, it is also readying a version of IBS Enterprise that can be sold as a software-as-a-service product. This SaaS version of the IBS apps has been in beta testing for a while, and is going to be sold in the United States before the end of the year.

In a separate announcement, IBS said that it has sold off its IBS Brasil Informatica subsidiary, which employs 90 people in that South American country, to the company's management team, lead by managing director Marco Esteves. (The press release said nine people, but the interim financial report covering January through September said 90 employees for the unit.)

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