Epicor to miss its revenue targets

Epicor just updated its forecast for its third quarter financial results, and the picture isn't pretty.

The firm says that revenue for the quarter will be between $110 million and $112 million. Wall Street has been expecting revenue in the neighborhood of $119.5 million.

Epicor's explanation for the shortfall is also weak. It blames its method for forecasting sales to more accurately reflect the timing of the close of larger orders. It says it has now changed its forecasting process and as a result it expects year-over-year software growth rates to be affected for the next quarter or two. It looks as if the firm is positioning itself for continued bad news.

Commenting on Epicor's announcement, David Parker at SunTrust Robinson Humphrey writes,

This is the second quarter in a row in which the company has missed license revenue estimates and we feel this stems from an abrupt lack of focus with regards to mid-market customers, which we find surprising given that these customers are the company’s core target market. Although we understand the desire to move the product up-market, we are hard pressed to find a valid reason for meaningful license misses simply because the company finds it challenging to balance a move up-market with historic success in the mid-market. In addition, our belief that the company can return to at least double-digit license growth is hindered when weak execution in the core market is combined with the intense competition from the likes of SAP and Oracle in the large enterprise market.

As Parker points out, Epicor is in a tough position. Oracle and SAP are aggressively coming down into the mid-market, largely though VARs and resellers, and are doing a pretty good job of winning deals. At the same time, vendor consolidation has made buyers question the viability of smaller vendors. Epicor's announcement this week reinforces buyer fears that the firm is not on a winning path.

Ironically, Epicor has been one of the players behind the vendor consolidation trend--snapping up a series of even smaller players in the past years. This gives it a diverse portfolio of product offerings, but raises questions about its ability to support them all. It appears to be promoting its Vantage product as its flagship offering right now, as a way of countering perceptions that it is simply a rollup of smaller vendors. But its announcement this week shows that it's not being successful in this strategy.

Update, Nov. 15: Rumors of a layoff coming at Epicor.

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