Tech Beat: Enterprise information technology
“Enterprise information technology” is one of those vague, but very widespread IT buzzphrases used to describe a wide range of software and hardware products, ranging from those that help companies manage large volumes of data to those that help companies manage their own technology.
The one theme that connects all these technologies is that the typical company – much like the typical American household – has growing amounts of “stuff” under its roof. Whether it be computer servers, layers of software being added haphazardly to maintain the servers, or volumes of consumer data that rest on these servers, all of this stuff needs to be organized in a somewhat orderly way so that it can be used to maximum efficiency, and, in the case of consumer data, stored in such a way that it may be easily called up on demand.
A couple of trends are driving this demand for technologies to better manage the enterprise and the data that rest within. The first, quite simply, is growth. As companies get bigger, they accumulate more computers to run their operations, and more consumer data to store.
Perhaps a more significant factor than sheer growth, however, is the haphazard way in which companies have typically grown their back offices: adding servers one, or a few at a time as required, and then patching them together with software and middleware, rarely taking the time to take a systematic look to determine how it might all be put together more effectively.
The typical company has assembled an assortment of hardware and software into something that resembles a workable back office, but usually not in the most efficient manner possible. A recent study by IBM, in fact, found that the average business spends just 30% of its IT budget on hardware, devoting the rest to maintaining it all.
Then there is the matter of customer and employee data. A lot more of it is being stored than in years past, due partly to cheap computer storage, and partly to tighter regulations governing several industries like financial services and healthcare. Thanks to advanced computer technology, companies are now storing audio, video and media-rich graphics along with regular text data, which poses new challenges around security and simple retrieval.
Everyone who is anyone in IT understands the importance of enterprise information technology and the largest computer hardware makers like International Business Machines Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ) all have established enterprise information strategies to help companies get organized.
Since this industry is still relatively young, there is also a lot of room for smaller players serving a particular niche of the market. A look at two such small-cap players serving two very distinct segments of this market helps illustrate both the opportunity and the risks involved.
BluePhoenix Solutions Ltd. (Nasdaq: BPHX), of Herzlia, Israel, has had runaway success of late. The company, which makes a variety of technologies to help companies modernize legacy IT systems, has seen its stock price more than double over the past year, to a new 52-week high Wednesday of $11.95.
Fueling that rise is a long track record of steady growth that has taken revenues to $68 million last year, from $59 million the prior year and $57.2 million in 2004. The company’s net income has more than doubled in two years, to $7.9 million in 2006 from $4 million in 2005 and $3.5 million in 2004.
While BluePhoenix has a lot of stiff competition from much larger vendors like IBM, it seems to have carved out a decent market niche for itself. One analyst who follows the company is projecting revenues this year will reach $83.6 million, while net income will rise to $0.54 per share, from $0.33 per share in 2006. On Tuesday C.E. Unterberg, Towbin initiated coverage of BluePhoenix with a "buy" rating and a 12-month price tartget of $23.00.
Emageon Inc. (Nasdaq: EMAG), a Birmingham, Ala., company that grew out of a research center at the University of Alabama’s Birmingham Medical Center, focuses on a very different enterprise information technology designed to help the healthcare industry manage large volumes of medical images efficiently.
The company’s product is a software and hardware solution that provides for the digital storage of medical images that can scale to serve small diagnostic centers and major hospitals.
Although demand for this sort of image storage and retrieval has been strong, helping Emageon more than double its revenues in two years, to $123.5 million last year, from $45.8 million in 2004, the company continues to lose money and has recently suffered from a slower-than-hoped for adoption rate at many medical centers.
Emageon lost $6 million in 2006 and it recently said 2007 results would be much lower than expected because more doctors were waiting longer to update software.
Friedman Billings Ramsey last month downgraded Emageon to "marketperform" from "outperform" and cut the price target to $12 from $20.
In its updated forecast, Emageon said that it expects 2007 revenues of $112 million to $115 million, well below its previous forecast of $136 million to $140 million. It also forecast a net loss of between $3.7 million and $4.9 million, which would work out to a per share loss of between $0.17 and $0.22. Before it lowered its estimates, Emageon had been predicting a 2007 profit of between $0.24 and $0.29 per share.
Its stock, needless to say, has been punished badly. Emageon now trades around $9.29 per share, down from $14.55 at the start of the year, and close to its all-time low of $8.02.
