B2B vendors hit by revenue shortfalls, layoffs

The world of business-to-business software vendors took a heavy punch earlier this month as Ariba Inc., BroadVision Inc. and i2 Technologies Inc. all disclosed that the softening U.S. economy has transformed their previously optimistic business outlooks into the harsh new reality of revenue shortfalls and layoffs.

Mountain View, Calif.-based Ariba – one of the first vendors to develop B2B software and previously a poster child for the Internet economy – was pummelled by a triple whammy of disappointing revenue, a plan to cut about one-third of its employees and the cancellation of a merger deal with San Jose-based Agile Software Corp.

Ariba announced that revenue for its fiscal second quarter, which ended recently, is expected to total about US$90 million, which it said would be “significantly lower” than its earlier expectations. The shortfall will likely result in an operating loss of about US20 cents per share for the quarter, excluding some non-cash charges, the company said.

“As many others are also realizing, the slowdown in both the economy and technology spending has been much more dramatic than we had previously expected,” said Keith Krach, Ariba’s chairman and CEO, in a statement. “At the end of the quarter, we experienced a large unexpected drop-off in our sales closure.”

In response, Ariba said it’s implementing a series of spending cuts, including the layoffs of about 700 of its 2,100 employees. Looming even larger is the cancellation of the company’s planned acquisition of San Jose-based Agile due to what Krach described as “adverse economic and market conditions.”

The Agile deal, which was announced in January, was seen by Ariba as a way to bring collaborative software into its business-to-business product line. But now, Krach said, Ariba plans to revert to its original focus on e-commerce applications.

At Redwood City, Calif.-based BroadVision, the spotlight was also on layoffs, disappointing revenue and an expected loss. The company said it plans to cut 325 employees – or about 15 per cent of its workforce – after being affected by delays in purchases by users during the just-finished quarter.

Estimated revenue for the first quarter totals US$85 million to US$90 million, with an expected loss of US14 to US16 cents per share on a pro forma basis. In addition to the layoffs, BroadVision announced a corporate reorganization and other cost-cutting actions.

“Our first-quarter results reflect economic uncertainties, which caused some customers to postpone major IT expenditures,” said Dr. Pehong Chen, BroadVision’s president and CEO. “Although revenues grew more than 45 per cent year-over-year, due to external factors, we closed fewer transactions than anticipated.”

The cutbacks at Ariba and BroadVision followed a similar announcement earlier by Dallas-based i2, which disclosed that it may lay off up to 10 per cent of its 6,100-plus employees because of lower-than-expected financial results in the first quarter. Other cost-reduction measures are also planned as part of a move to cut spending by a total of five to 10 per cent, i2 said.

Despite all the hype about B2B applications, Kama Krishna, an analyst at Beck, Ryan & Co. in Livingston, N.J., said the back-to-back-to-back layoff announcements by three key business-to-business vendors weren’t a big surprise. “The macroeconomic environment has basically made people very [leery] about buying big-ticket items like B2B software,” Krishna said.

Many B2B vendors had highly-optimistic growth projections based on their results from last year, according to Krishna. But those expectations were cases of “irrational exuberance” that eventually came back to earth because of the economy, he said. The cancellation of the Ariba-Agile merger also wasn’t shocking in light of Ariba’s planned cutbacks, Krishna added.

Chris Silva, an analyst at market research firm International Data Corp. in Framingham, Mass., agreed with Krishna that the cost-cutting actions were inevitable. “It was kind of like one of the other shoes that was about to drop,” he said. Silva compared the current slowdown in IT spending to “nuclear winter” and predicted that only the strongest B2B vendors will be able to survive if the situation doesn’t improve quickly.

Ariba’s now-scuttled acquisition of Agile was expected to put it in more direct competition with i2, which bought Agile rival Aspect Development Inc. last year. But the value of the proposed stock-swap deal had sunk like a rock along with the price of Ariba’s common stock, declining from US$2.55 billion when the agreement was announced in January to only about US$300 million at current prices as of press time.