Lawson’s “Ugly” Quarterly Results Are Actually Quite Handsome

The world is supposedly flat and so are the enterprise software industry’s revenue expectations for the remainder of 2009.

Gartner recently downgraded its previous full-year forecast (subscription required) for enterprise software revenues, from an earlier projection of 6.6 percent growth for 2009 to a “flat” 0.3 percent growth rate that would total $222.6 billion. (Naturally, the Gartner analysts noted that the forecast could decrease another 1 to 2 percent “if deteriorating economic conditions continue.”)

Lost amid the hubbub of all things SAP and Oracle in the enterprise applications space (ERP, CRM, BI and supply chain vendors), are the other sizeable and important players with thousands of customers.

Just how are they weathering the same storm?

One of those key players is Lawson, a top 10 business apps vendor (according to Forrester Research analyst Ray Wang’s rankings) that has approximately 4,500 customers in the manufacturing, distribution, maintenance and service industries in 40 countries.

A recent AMR Research examination of Lawson’s FY2009 third-quarter results shows that, like SAP and Oracle, Lawson faces serious challenges but is grinding its way through the recession to achieve some financial success.

Though Lawson’s Q3 revenues ($174 million) were off 18 percent from Q3 2008, “overall business isn’t as bad as it first appears, as currency fluctuations negatively affected revenue by approximately 8 percent,” note AMR’s Jeffrey Freyermuth, Nigel Montgomery and Jim Shepherd in the report (subscription required).

In fact, Lawson met its goal of delivering a 15 percent operating margin during the quarter, states the AMR report, and grew its maintenance revenue by 1 percent (or 8 percent adjusted for currencies) from last year. The vendor signed 234 deals in the quarter, with the average sales price dipping to $93,000, as Lawson’s customers continue “to buy in smaller chunks,” the AMR report notes.

The most apt quote from the earnings call came from Lawson CEO Harry Debes: “Sometimes you win ugly, but the quarter was still a victory.”

That word—ugly—so perfectly sums up the state of ERP today. As I’ve reported recently, enterprise software customers are fed up with onerous and ongoing ERP expenses, negligible odds of implementation success and name-brand vendors who charge too much. Which has led desperate customers to look for ways to generate excitement in ERP projects and for new ERP solutions from non-traditional places.

Of course, during times of financial duress, ERP vendors have a well-known “ace up their sleeves” that substantially increases their odds of success: Large installed bases who are absurdly dependent on their ERP systems, as well as recurring maintenance revenues that buoy sinking bottom lines.

That point is echoed by the Gartner report: “Despite an unsettled outlook, the enterprise software market has the potential to weather the current economic downturn better than in 2001 and 2002 because market conditions are dramatically different in terms of maturity, penetration, confidence in IT, and the geographical and vertical mix.”

The AMR analysts note that Lawson’s fourth-quarter results will be closely watched by investors and industry analysts alike: Lawson has $200 million in maintenance contract renewals in the Americas coming due at the end of May 2009, notes the report. (To read about SAP’s and Oracle’s recent balance sheets and their near-term challenges, see “SAP vs. Oracle: Battle of the Balance Sheets.”)

“December through February was about as bad an economic climate as anyone can remember,” write the AMR analysts. “Proving that you can sustain and even grow margins in the midst of a recession is bound to impress investors and reassure prospective customers.”

We shall see.

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