MAPICS, Inc.

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MAPICS, Inc.

1000 Windward Concourse Parkway
Alpharetta, Georgia 30005
U.S.A.
Telephone: (678) 319-8000
Fax: (678) 319-8455
Web site: http://www.mapics.com

Public Company
Incorporated: 1980 as Marcam Corporation
Employees: 450
Sales: $128.3 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: MAPX
NAIC: 511210 Software Publishers

MAPICS, Inc. is a business application software and consulting company located in Alpharetta, Georgia, helping midsized manufacturers and corporate divisions to streamline and coordinate such business processes as manufacturing, customer service, engineering, supply chain planning, enterprise asset management, and financials. MAPICS has thousands of customers in more than 10,000 sites in 70 countries, and its applications are available in 19 languages. Major clients include Dukane Corp., Volvo Construction Equipment, Goodrich Corporation, and Honda Motor Co.

MAPICS Software Launched in Late 1970s

MAPICS is an acronym for Manufacturing, Accounting, Production, and Information Control System, the result of research and development that transformed early inventory tracking systems into material requirements planning (MRP). This concept was in turn expanded to include a wide range of business functions, allowing a manufacturer to manage, predict, and control its resources and investments. MAPICS was developed in 1977 by IBM’s Atlanta Software Development Laboratory, also known as the Rainer Moore Lab in recognition of the facility’s first director. The product, which debuted in 1978, was originally designed for use on the IBM System/34, which preceded the IBM AS/400 midrange computer. At first MAPICS was devoted to such financial processes as accounts payable, accounts receivable, general ledger, and payroll, and only later did engineers build manufacturing applications around this core. MAPICS was geared towards discrete manufacturers, which assemble products from parts. (Process manufacturers rely on chemical reactions or deconstruct natural materials in order to create such products as foods, chemicals, and drugs.) Over the first 12 years, MAPICS built up a sizeable user base, IBM expanding the number of users by making it affordable, looking to profit instead from hardware sales. In 1992, when IBM decided to leave the applications business, it sought a suitable buyer of the product line, eventually settling on a small software developer based in Newton, Massachusetts, named Marcam Corporation.

Marcam was co-founded by Paul Margolis, who after earning a bachelors degree from Brown University and an MBA from Harvard Business School started his own electronics business, which he later sold. He then went to work for Ketron Corporation as a manufacturing manager before becoming a consultant, in which capacity he was involved in a number of MAPICS installations at electronic companies in the late 1970s. Marcam was founded in 1980 to service and support MAPICS customers and was successful three times in raising venture capital funds. In 1986, the company launched its own product, PRISM, designed to do for process manufacturers what MAPICS did for discrete manufacturers. In a world of rapid technological changes, Marcam attempted to get ahead of the curve in the late 1980s by investing heavily in research and development of new products, in particular those based on object/oriented programming, in the hopes of leapfrogging competition and emerging in a clear leadership position. To support this lengthy and expensive process, Marcam went public in August 1990.

Early 1990s Agreement between IBM and Marcam

In October 1992, IBM and Marcam announced they had reached an agreement on an alliance to develop, market, and support MRP applications. IBM received a 16 percent stake in Marcam, which in turn received exclusive worldwide marketing rights to the MAPICS software line for 25 years, with the option to buy the IBM subsidiary, Mapics, Inc. To support MAPICS, Marcam and IBM agreed to jointly staff an Atlanta facility with approximately 150 people. In reality, it was the same IBM personnel, now contracted to Marcam, which provided management of the operation.

Heading the new MAPICS Business Group for Marcam was the director of IBM’s Atlanta Software Development Laboratory and the current CEO of MAPICS, Richard G. Cook. He originally went to work for IBM in 1967 as a programmer in an IBM factory located in Boca Raton, Florida. By writing programs, he became intimately familiar with a wide range of business functions, including production control, finance, and cost/profit analysis. Declining an opportunity to move to New York, he gained further experience by accepting lateral moves within the organization. Serving as director of site operations Cook was involved in the difficult task of establishing entire infrastructures. Later, he became director of manufacturing for IBM, and in this role he acquired a number of off-the-shelf products, one of which was MAPICS. He then became the director of the Atlanta Software Development lab in March 1990. After IBM granted the MAPICS rights to Marcam, Cook severed his ties to IBM after 25 years and convinced 127 colleagues to join him at Marcam. According to Cook, “During the first year I spent most of the time extricating myself from IBM’s culture and adapting to what amounted to a start-up.”

Because MAPICS and PRISM targeted different sets of customers, Margolis called the deal, which was completed in February 1993, “a marriage made in heaven.” Marcam gained a steady revenue stream to help fund its costly research and development program, while MAPICS appeared to be a business now free of corporate shackles. According to a 1993 article in MIDRANGE Systems that relied on information from Cook, IBM had “commissioned an independent company to conduct a customer satisfaction survey of MAPICS and non-MAPICS users. It also has feedback from users attending COMMON [a MAPICS User Group conference]. Unfortunately, response previously didn’t occur largely because decisions that benefited IBM as a whole often restricted advances to MAPICS. Freeing the MAPICS products from the slow moving hardware giant and placing it under the direction of a manufacturing applications software company like Marcam finally gives users cause for optimism. The brand managers—the people responsible for reviewing feedback from users and making product-specific recommendations—now work for the joint venture.” IBM’s inability to support MAPICS in a timely manner had opened the door to third-party companies to develop MAPICS products and services, business that the new MAPICS business group hoped to capture. When in June 1993 IBM and Marcam announced jointly the debut of 11 new modules (to augment 19 existing applications) as well as other enhancements, an improved MAPICS product received a positive response from users.

The future appeared bright for Marcam and its two-pronged business model. It was a one of only a handful of large players in an expanding and relatively fragmented industry. With a market share of just 6 percent, Marcam appeared to be well positioned to experience rapid growth. Marcam was so pleased with the performance of MAPICS that in September 1995 it exercised its option and bought out the IBM subsidiary. Not far from the surface, however, lay difficulties for MAPICS and its parent corporation. According to MIDRANGE Systems in August 1995, most MAPICS users “bought it as an IBM product known for its affordability at a time when IBM made its biggest profits from hardware sales. Marcam must make its profits from software sales and support contracts. This perception issue has caused disharmony with some users, who have expressed the feeling that if MAPICS begins to cost them as much as competitive products they plan to compare it with competitive products for new purchases or upgrades.”

Late 1990s: MAPICS, Inc. Is Founded

Frustration was also mounting in Atlanta as it became increasingly more evident that anticipated synergy was never going to materialize. The two Marcam divisions did share the same sales channels or marketing and development philosophies. Reflecting on this period in a 2001 interview in Strategic Finance, Cook recalled, “MAPICS turned out to be a great deal for Marcam, which was losing tons of money. MAPICS was always profitable, with revenues of about $20 million a year, so we were a cash cow. However, we couldn’t overcome 13 successive quarters of Marcam’s losses, and by the fall of ‘96 we realized that our company would be dead by 1997 if we didn’t do something drastic.” Because Marcam was spending a great deal of money developing its object-oriented PROTEAN system for process manufacturers, profits suffered. Investors did not differentiate between the profitability of the two divisions, forcing down the price of Marcam stock. As a result, some potential customers of MAPICS were scared away, fearful about the long-term health of the vendor’s corporate parent. According to Cook, he was unable to raise money from banks or venture capitalists: “We went to Marcam’s board of directors and asked them to set us free so that MAPICS could survive. It was ugly, but the board agreed, and we hired lots of lawyers and accountants, spending an agonizing summer [of 1997] to finalize the deal. We borrowed $64 million from Bank of Boston and took over the parent, creating a subsidiary, Marcam Solutions, Inc. We took $25 million of our loan to pay off Marcam’s debts and gave Marcam $39 million over two years as a divorce settlement.” Marcam became MAPICS, Inc., which then made an initial public offering (IPO) under its new name. Investors bought 6.9 million shares at $9 each, well aware that the proceeds would be used by MAPICS to pay off the debts of Marcam Corporate to complete the split, but they were clearly confident that MAPICS would be a viable business on its own. Following the IPO, Marcam Solutions was spun-off in a tax-free distribution to shareholders of Marcam Corporation, buyers of the new offering excluded.

Company Perspectives:

MAPICS is a visionary, global software company focused exclusively on delivering collaborative business applications and expert consulting services that help manufacturers become world class.

With the completion of this “reverse spin-out,” Marcam Solutions remained headquartered in Newton, Massachusetts, with Michael J. Quinlan serving as CEO, having replaced Margolis in early 1996, while MAPICS choose to operate out of Atlanta with Cook named as its president. Both companies started with a clean slate, free of debt. MAPICS was especially interested in increasing its level of first-time users and devoted a good deal of its resources developing a version of MAPICS software that could be run on Windows NT, generally regarded as the chosen platform of the future. In the meantime, the company introduced a new release of MAPICS in early 1998, which served to drive license sales, while the company also beefed up its marketing staff and spent considerable sums in promoting itself and its products. In its first full year as an independent company, MAPICS posted nearly $130 million in revenues and a net profit of $18.7 million. Business was so strong that the company outgrew its 77,000 square feet of office space in metro Atlanta. In December 1998, it found 120,000 feet of new office space in nearby Alpharetta, Georgia.

Due to Y2K concerns, MAPICS experienced a slowdown in sales during 1999. Once through this rough patch, according to Cook, management “focused on an acceptable Windows alternative that wasn’t a toy. First we had a make-or-buy decision.... Since we decided to buy rather than make we had five finalists with ERP backbones running on NT.” Despite a softening economy, MAPICS elected in December 1999 to acquire Woburn, Massachusetts-based Pivotpoint for $48 million in cash, thereby adding Pivotpoint’s Point. Man system, which allowed MAPICS to operate on UNIX, NT, and Linux platforms. In conjunction with Pivotpoint, MAPICS also looked to develop capabilities in e-business, which along with supply-chain management offered promising growth opportunities.

As the economy began to slow down in 2000, MAPICS experienced a decrease in licensing sales, the result of customers putting off investments. To trim costs, in August 2000 MAPICS cut its work force by 10 percent. In fiscal 2000, the company experienced a drop in revenues to $118.7 million and reported a net loss of $17.7 million. As the economy lapsed into recession, MAPICS lost an additional $27 million in 2001, despite revenues growing to $138 million. With customers reluctant to purchase software, MAPICS and its competitors were forced to weather extremely difficult conditions. MAPICS, better positioned than most of its competitors, was able to take advantage of the situation and acquired one of its rivals, Frontstep, in a $28.6 million stock swap and the assumption of $20.1 million in debt. Frontstep’s roots were as deep as MAPICS, founded in 1979 as MMS International by its chairman Larry Fox, who claimed in a 1995 interview that the inventory-control software business “started with one guy, 50 bucks and a computer.” The company became known as Symix Computers Syterns before changing its name to Frontstep in 2000. After three consecutive years of losses, the company had little choice other than to join forces with another mid-sized company like MAPICS, which had a stronger balance sheet. After the acquisition was completed in February 2003, MAPICS reduced its work force by 23 percent, amounting to some 250 jobs. The company remained healthy and waited for economic conditions to improve, at which point manufacturers were expected to once again invest in managing-control software. It was also becoming clear that the market was maturing and that consolidation in the industry was starting to occur, with larger software companies able to command greater resources and likely to dominate. Whether MAPICS would emerge as one of these major players remained to be seen.

Principal Subsidiaries

Frontstep Inc.; Pivotpoint, Inc.

Principal Competitors

i2 Technologies, Inc.; PeopleSoft, Inc.; SAP AG.

Key Dates:

1978:: MAPICS software debuts.
1980:: Marcam Corporation is formed.
1993:: IBM sells MAPICS rights to Marcam.
1997:: Marcam changes its name to MAPICS, Inc.; other product lines are spun off as Marcam Solutions.