Brief Overview of I2:

Started in 1988 by Sanjiv Sidhu (SAP – started in 1972).

Based in Texas USA.

Business Solutions:
I2 is a provider of supply chain management solutions, including various supply chain solutions
consisting of software and service offerings. It operates its business in one business segment.
Supply chain management is the set of processes, technology and expertise involved in
managing supply, demand and fulfillment throughout divisions within a company and with its
customers, suppliers and partners. The goals of the company’s solutions include increasing
supply chain efficiency and enhancing customer and supplier relationships by managing
variability, reducing complexity, improving operational visibility, increasing operating velocity and
integrating planning and execution. Offerings are designed to help customers better achieve the
following critical business objectives:

• Visibility - a clear and unobstructed view up and down the supply chain

• Planning - supply chain optimization to match supply and demand considering system-wide
constraints

• Collaboration - interoperability with supply chain partners and elimination of functional silos

• Control - management of data and business processes across the extended supply chain

These are the four segments where all the solutions provided by I2 fit in.

The application software is often bundled with other product offerings such as business optimization
and technical consulting, training, solution maintenance, software upgrades and development.

The company derives revenues from licenses of software and related services, which include
assistance in implementation, integration, customization, training, consulting and maintenance.

Customers:

Customer Concentration: No individual customer accounted for more than 10% of total revenues.

Customer list available on company web site.

Company Debacle:

The below graph indicates the share prices of the company in NASDAQ (ITWO)
No of Employees in 2001 – 6100

No of Employees in 2006 – 1340

Indicates a reduction of 10-12% on an average every year.

Key Indicators:

Figures in $Mn.

FY 2006 FY 2005 FY 2004

Total Revenue 279 337 389
Cost of Revenue 111 120 151
Net Income 24 87 -1.3

Cash and Equi. 114 118 141

Current Liabilities 132 197 246
Long Term Debt 84 76 317
Net income increased in 2005 because of:
1. Decreased R&D expenses ( $71Mn – 2004, $ 37Mn – 2005, $35 Mn – 2006)
2. Reduced administrative expenditure – ($151 Mn – 2004 , $104 Mn – 2006)
Debacle Indicators:
 Revenues falling since 2001.
 Getting beaten up by SAP and Oracle (since SAP and Oracle provide complete suite of
ERP applications)
 Stock delisted in March 2003
 $ 300 Mn debt at the end of FY 2004 (debt almost equal to yearly revenue).
 I2 implementation failure for Nike
Debacle was also partly because of the dot com bust of 2001 when companies slowed their
IT spendings.
Restructuring started at the end of FY 2004.
 New CEO – Mike McGrath – well known personality in SCM field
 Raised money to pay off debt
 Got the stock relisted
 Major cost restructuring efforts – to cut ‘cost of revenue’. Employee reduction at upper
mgmt level – almost 13-15%. No business travel unless billed to the customer

Financials:

Contract revenue is the result of the recognition of certain revenue carried on i2’s balance sheet
as a portion of deferred revenue. The timing of the recognition of deferred contract revenue is
difficult to predict and is not typically associated with current business or cash collections.

Even though the total revenue has decreased in Q4 06 (by 17 odd %) , the decrease can be
attributed to the decrease in contract revenue. Operating revenue should give us a better picture
of the business and the same marginally increased in Q4 06 (by 3%).
Financial Highlights of FY 2006:

Total revenue decreased significantly by 17% in FY 06. However the operating revenue
decreased marginally in FY06. Contract revenue is deferred revenue.

Even Long term debt has increased from 75.7 (FY 2005) to 83.8 (FY 2006). One of the main
reasons for I2 debacle was that the debts had increased

Question: Can we say I2 is growing and has come out of the debacle which it went into 2-3 years
back?

Sources of Revenue:

Software Solutions: Software solutions revenue includes core license revenue, recurring license
revenue, and fees received to develop the licensed functionality.

Software solutions revenue decreased $3.8 million in the three months ended March 31, 2007
when compared to the same period in 2006. These decreases are largely attributable to the fact
that revenue recognized from prior period bookings decreased.
Company Quote: Our account teams, led by sales representatives and consulting managers, are
responsible for most of our software solutions revenue. Over 50% of our current sales staff has
less than one year of experience with our company. Although we believe direct sales will continue
to account for most of our software solutions revenue for the foreseeable future, we plan to
continue developing indirect sales through, or in conjunction with, sales alliances, distributors,
resellers and other indirect channels. There can be no assurance that our efforts to further
expand indirect sales of our software solutions will be successful or will continue in the future.

This indicates that it is becoming increasingly difficult for I2 to attract new customers.

The company itself is not confident whether it will be able to match the Software Solutions
revenues, indicates a low morale.

Services revenue: is primarily derived from fees for implementation, integration, consulting and
training services and is generally recognized when services are performed. In addition, services
revenue includes fees received from arrangements to customize or enhance previously
purchased licensed software. Services revenue also includes reimbursable expense revenue,
with the related costs of reimbursable expenses included in cost of services.

Services revenue increased $4.8 million, or 20%, for the three months ended March 31, 2007
compared to the same period in 2006. The increase in the three months ended March 31, 2007 when
compared to the same period in 2006 reflects growth in the average number of services personnel as
we continue to match the levels of services personnel with the market demand for our services. Based
on our historical trends, we expect services revenue to continue to fluctuate on a quarterly basis due to
the timing of booking new projects and the timing of revenue recognition on these projects.

A strong growth in the Services revenue indicates that there are loyal customers of I2 and they
continue to prefer I2 products.

Maintenance: Maintenance revenue decreased $2.2 million, or 9%, during the three months ended
March 31, 2007 compared to the same period in 2006. The decrease in maintenance revenue resulted
mainly from a continuing decline in the number of maintenance renewals as well as less favorable
renewal terms. There can be no assurance that maintenance revenues will not continue to decline.

Cost of services and Maintenance – Increased by 14% in Q1 2007 – Because of increase in

average services and maintenance headcount of 12%.

Research and development expenses decreased $0.1 million, or 2%, for the three months ended
March 31, 2007 compared to the same period in 2006.

Competitors:
 ITWO JDAS ORCL SAP Industry

Market Cap: 337.93M 596.43M 104.36B 62.82B 154.97M

Employees: 1,340 1,701 74,674 39,355 217

Qtrly Rev Growth (yoy): 2.40% 89.60% 20.20% 6.10% 16.40%

Revenue (ttm): 281.22M 320.33M 18.00B 13.13B 76.14M

Gross Margin (ttm): 60.59% 61.31% 76.86% 66.42% 56.44%

EBITDA (ttm): 54.41M 53.71M 7.46B 3.86B 5.61M

Oper Margins (ttm): 10.97% 7.64% 34.08% 27.17% -1.47%

Net Income (ttm): 23.64M -7.01M 4.27B 2.62B -344.79K

EPS (ttm): 0.902 -0.239 0.811 2.13 N/A

P/E (ttm): 17.67 N/A 25.17 24.39 29.69

PEG (5 yr expected): 1.92 1.04 1.19 1.75 1.46

P/S (ttm): 1.20 1.86 5.80 4.78 2.91

Can we say SAP or Oracle is I2’s competitor?

SAP revenue - $13 Bn, Oracle - $18 Bn, I2 - $300 Mn

I2 Strategy:
 New products (e.g. how different products will sell, in real time and even at the store
level.)
 Less reliance on Multi million dollar deals – Bigger the deal – bigger the software cycle.
Led to unpredictable earnings.
 Sell software in chunks to address specific part of manufacturing / SCM. Smaller chunk –
Less cost – smaller cycle – Predictable earnings.

Summary - Take aways:

 I2 doing reasonably well till 2001, when the debacle started. Currently in a better shape
than what it was in 2004. However, still struggling.

 Some very loyal customers. Very Difficult for I2 to add new customers. However, some
new customers have been added in Japan/APAC region. The revenues from these
customers are not as much as US customers.
 Revenue from services has been increasing. Revenue from software solutions and
maintenance has been decreasing.
 Major restructuring efforts going on.
 Change in the strategy to sell – Selling in chunks to reduce the selling cycle.

Insider Information:
Role offered to SPJCM in Apr 2007:
One of the seniors: The designation we MBAs have been offered is of either Consultants or Sr.
Consultants. The role is as follows:
1. Once a client is assigned, study the process on the client side. Map it to the standard i2
SCM scorecard model (SCOR), study where i2 products can fit in and make a difference
in terms of improving the SCM profitability. Right now , we are being put thru a rigorous 3
month Boot Camp. and we asre being trained comprehensively on all i2 products. They
are superb... I mean the algorithms that run in the backdrop make you sit back and think,
man this is AMAZING.. the work of a genius !
2. Work involves lot of onsite travel once you master a product
3. Very analytical bent of mind required.
4. Requires interaction with CXO level employees

Roles to Students from other colleges:

Same roles.. same profiles even for IIM chaps or SPJIMR chaps. (NOTE: i2 doesn't visit any
other campus)
Work Culture:
Just one word.. EXCELLENT. Its a product co... Support is a separate dept. Go home at 6
sharp..even the canteen is closed after that. Good family life. But the day time is packed up as
anywhere else. HR is active and respected.

I2 Recruitment plans for the year:

i2 is coming back right now and its in a conservatively expansion mode..will definitely br recruiting
for this yr.