Lawson: “The” IBM ERP Play

Despite Lawson’s (LWSN) relatively small size in the applications market at under $500M in applications and maintenance revenue in its FY 2007, which ended May 31, 2007, Research 2.0 follows Lawson from time to time because it is basically the last ERP pure play. SAP (SAP) is now doing over a billion dollars a year in middleware and most of the other name-brand application players sell more standalone applications (HR, CRM, project management, and so forth) than they sell ERP.

Therefore Lawson is one of the best overall ERP market indicators (Lawson does sell a lot of standalone HR but that functionality works in an ERP suite if users want it that way, so we consider Lawson’s revenue to be all ERP).

A little over a year ago, when the Lawson/Intentia merger was formalized I wrote that Lawson was rapidly becoming “the” IBM (IBM) ERP play. I don’t think IBM would appreciate that characterization because IBM itself does not offer an ERP product and partners with multiple partners, other than Lawson, that do. But Harry Debes, CEO of Lawson, hinted at the concept during his presentation August 8, 2007, to financial analysts.

He said that Lawson was the alternative for J.D. Edwards’ users and other IBM-centric users acquired by Oracle (ORCL) (for example, a good percentage of the Peoplesoft base ran on AS/400) that are certainly going to be directed to Oracle middleware and databases, and away from IBM, over time. As for all the ex-AS/400 application suppliers kicking around inside Infor (JBA, Software 2000, SSA and more), Lawson is probably the most modern application middleware technology of any of that group.

Lawson emphasizes an IBM-WebSphere-based foundation for these users and all others for that matter. Earlier this year, Lawson announced that it would incorporate the IBM enterprise service bus into its foundation as well. The foundation runs on generic UNIX and Windows, as well as IBM operating software. In fact, in terms of porting to WebSphere, Lawson is doing with its M (legacy Intentia) and S (legacy Lawson) Series what Peoplesoft told its customers it would do with IBM in September 2003, before Oracle acquired Peoplesoft.

A key part of the investment play is the Lawson strategy to address a small number of industries at a very niche level (for example, not just retail, but grocery) as well as areas where asset-intensive services are involved. Both Lawson and Intentia were good in complementary industries like this when they were separate so there is no reason they cannot keep moving the ball up the field.

A year ago, Lawson said it needed to keep its diverse customer set happy and better compete with SAP, Oracle, Infor, Intuit (INTU), Microsoft (MSFT) and The Sage Group. With about 4,000 customers (about 1,800 each in Europe and the Americas, and almost 400 in Asia/Pacific), it is succeeding at the former. As many as 2,000 of them according to Jim Anderson, EVP of Services, are still running on older Lawson architectures (pre-WebSphere but mostly IBM also) and are key prospects for upgrade to the foundation. But of course that means that about half have upgraded already, an impressive rate.

The IBM connection is still a good way to look at the St. Paul/Stockholm-based Lawson from an investment perspective.

LWSN 1-yr chart: