19-03-2014, 03:40 PM
Nike: i2 Software Just Didn't Do It
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Nike Inc. and supply-chain-software supplier i2 Technologies are pointing fingers at each other for a flawed i2 implementation that upset Nike's inventory and ultimately forced the footwear maker to slash earnings estimates. Nike officials said an i2 supply-and-demand-planning application didn't perform as expected, resulting in shortages of some footwear models and excess stock of others. Executives at i2 (stock: ITWO), however, maintain that the problem was caused not by the software itself, but by Nike's customized implementation.
Regardless of who's to blame, the resulting inventory shortages will reduce Nike's fiscal third-quarter sales by as much as $100 million. Earnings estimates for the quarter, which ended this week, have been cut to 34 to 38 cents per share from 50 to 55 cents.
Nike has been working on its i2 software implementation since June as part of a $400 million overhaul designed to streamline communications with buyers and suppliers and lower operating costs. The i2 software failed to meet expectations "both in performance and functionality," a Nike spokeswoman said.
"This is what we get for our $400 million?" Nike chairman Philip Knight asked financial analysts when the company issued its earnings warning earlier this week.
Nike and i2 have "created some technical and operational workarounds" and the implementation is now stable, the spokeswoman said, but the financial impact of the problem will be felt for six to nine months, until Nike can unload the excess inventory.
But i2 last week was quick to place the onus on Nike. "We recommend that customers follow our guidelines for implementation—we have a specific methodology and templates for customers to use—but Nike chose not to use our implementation methodology," said Katrina Roche, i2's chief marketing officer. Roche said the Nike problem is "an isolated incident" and that the other 1,000 companies that use i2 software aren't at risk.
Several analysts said they think Nike might be using i2 as a scapegoat for its financial troubles, much as other companies have previously blamed Y2K remediation or ERP implementation headaches for their financial shortfalls.
But other analysts said Nike isn't overstating the impact of its software snafu. "Any time a company is deploying a system on such a wide scale, they're going to have problems more often than not," said Robert Toomey, a financial analyst at Dain Rauscher Corp.
Dain Rauscher lowered its estimate on Nike's 2001 earnings to $2.09 per share from $2.35 following disclosure of the software problem. Its 2002 estimates were lowered to $2.51 from $2.70.
Nike's stock dropped nearly 20 percent on Tuesday, and i2's share price fell 22 percent that same day.