With worldwide sales of $170m, 22 years of consecutive growth, and a five-fold increase in retained earnings, Cincom Systems Inc is in a better position than its competitors to weather and survive the current recession, founder and president Tom Nies believes. Nies says that the company has not been unaffected by the economic downturn, but acknowledges that Sybase Inc and Oracle Corp have had to take more drastic measures to reduce operating costs. Layoffs, claims Nies, are not the only way to rationalise, and while he criticises companies that fail to cut staff when profits are being hit, he also believes that redundancies are a mark of management failure. Effective managers ought to be able to look ahead and protect employees’ careers, and Cincom has made cost savings through restructuring, efficiency and attrition. Tom Nies and his family hold some 90% of Cincom’s equity, and he says that that has been a major benefit in an industry that is driven to growth by maximising share values. Nies firmly believes that it is damaging to allow the majority of a company’s stock to lie in the hands of outsiders that are looking for a fast buck and quick return. So will he continue to hold on to that massive 90%? Nies flatly denies that his equity share reflects a desire to hold on or control.
Floated
A percentage has been transferred to employees every year since 1981, and that policy will continue. He was planning a modest public listing in 1987, primarily as a liquidity basis for his 1,000 share-owning employees, but that was shelved when Wall Street crashed. Cincom will be floated when the markets are right, and with its 22-year track record, Nies claims, it will be in better position than most software companies. As regards products, Cincom has been very quiet about Systems Center acquiring Net/Master and its Australian developer, Software Developers Pty Ltd (CI No 1,385).
The general perception is that Systems Center whipped the product from under Cincom’s nose, along with UK managing director Terry Booth, and a 125-strong sales force. Not so, says Nies. Cincom made a decision not to renew its marketing agreement with Software Developers, and actually assisted Systems Center in the acquisition process. Net/Master was the least strategic product in Cincom’s portfolio, and didn’t fit with future product plans. –
Cincom founder TOM NIES talks to Janice McGinn
Cincom will concentrate on several areas including application development tools, manufacturing application systems, project management and control, text management and development, relational databases, and a full life cycle technology interoperable across a range of environments. With such ambitious plans, Net/Master was just one product too many. Cincom’s current range comprises three sectors – database, application products and manufacturing systems – and they each contribute a third of net sales. The fastest growing sector is manufacturing application systems, and new business in the US grew by 70% last year. Nies says that application development is the most profitable sector, while the database division is largest and expected to grow next year with the launch of a Unix version. Cincom forecasts that each sector will experience between 40% and 45% growth in the coming 12 months, and the company as a whole will grow by 11%. Nies expects profits, which Cincom has the right not to disclose, to rise for three reasons. Recurring revenue will form a larger percentage of total revenue; secondly, as revenue grows, research and development will represent a smaller percentage; thirdly, new products and add-ons will generate better rates of new business. Cincom has seen a shift in the amount of revenue derived from IBM and DEC equipment, and Nies says that in terms of manufacturing systems, five years ago the ratio was 4:1 in IBM’s favour, and that is now reversed. This is not only an indication that companies are adopting a decentralised structure, but a reflection of the cost of transactions on mid-range equipment. An IBM top-end mainframe transaction costs between $1
00,000 and $150,000 per MIPS, but the an equivalent transaction on the RS/6000 costs just $5,000. Nies believes that such economics bode ill not only for IBM’s mainframe revenue, but for DEC and any other proprietary manufacturer.
Collapse overnight
So, could the IBM mainframe market collapse sooner than expected? Nies has no doubt that were it not for tremendous efforts on IBM’s part, it could collapse overnight, and if there is one overriding factor ensuring that there is a continuing market for IBM’s proprietary and expensive technology, it is the cost of conversion. He also suggests that IBM is using software technology to drive users up to MVS since the best software is at the top end – the expensive end – of MVS-VSE-RISC pyramid. DB2 is the premier software product in IBM’s stable, and AD/Cycle is the future direction. The catch is that AD/Cycle requires the Repository which needs DB2, and DB2 is only available at the top end. Cincom, claims Nies, is going to act as a counterthrust to the hardware vendors by developing womb-to-tomb full life cycle technology. 1991 announcements will go beyond what IBM is offering with AD/Cycle, and the company is planning a range of relational products that will run under MVS, VSE and Unix. There will be phased roll-out of new products that have been under development for five years, and they will include technology and components from a number of unidentified development partners. Nies says he has no interest in hoarding the technology, and it will be made available to other vendors – including DEC and IBM.
