B2B Software Firms Slump

The economic downturn is taking no prisoners, hammering away at the very companies that thought they could coast through a recession.

It wasnt long ago that business-to-business (B2B) software companies, such as Ariba, Commerce One and i2 Technologies, boasted that they would be able to ride out a downturn because their software did what companies needed most to do — cut costs.

But the stars of B2B arent crowing anymore. One by one, they have been forced to issue earnings warnings and pare staff in response to sputtering sales.

Supply-chain software maker i2 said earnings for the current quarter will be 2 cents per share on sales of $355 million, compared with previous estimates of a 5-cent-per-share profit on sales of $349 million. It will cut about 10 percent of its work force, or 600 employees.

Ariba said it would report a loss of 20 cents per share for the quarter ended March 31, a dramatic turnaround from the 5-cent-per-share profit analysts had expected. As a result, Ariba said it plans to lay off about 700 employees, or one-third of its work force. It has also called off a planned acquisition of Agile Software, which had been promoted as a way for Ariba to compete more effectively against i2.

Commerce One chimed in a day later, saying it expects to post a loss of 11 cents per share for the quarter on revenue of $170 million, compared with previous expectations of a loss of 6 cents per share on revenue of $198 million.

"In general, customers have become increasingly cautious," Commerce One CEO Mark Hoffman said in response to the shortfall. "In some cases, customers are making smaller initial investments in technology projects, and extending those projects over a longer period of time."

Patrick Walravens, an analyst at Lehman Brothers Holdings, said B2B firms may have a good argument with their offer to cut costs, but when information technology budgets are being slashed, companies tend to focus more on mission-critical applications. In that respect, he said, i2 may come out of this cycle with the strongest footing.