Iona set to add more strings to its bow

Barry Morris believes cuts in corporate spending have merely delayed deals, writes Jamie Smyth.

Iona Technologies chief executive Mr Barry Morris looks pretty relaxed for someone who has flown in from the US on an early morning flight only to find that his regular suite at the Burlington Hotel has been let out to another guest - none other than the US actor Leonardo Di Caprio who has jetted into Dublin for the premier of Gangs of New York. It is perhaps a sign of the times that Hollywood is once again able to block-book penthouse suites, relegating technology gurus to the less salubrious rooms on lower floors.

Iona, like the rest of the global tech industry, suffered badly in 2002. It saw sales slump as corporations continued to cut back on technology spending. Iona reported a net loss of $26 million (€24.6 million) for the third quarter and has confirmed that it made one-fifth of its staff redundant to reduce costs.

Analysts expect Iona to announce in its annual results, due next week, that it implemented more redundancies in the fourth quarter, although few expect any dramatic newsflow.

But Mr Morris is reasonably confident 2003 will be a better year for Iona - which is often considered the flagship Irish tech firm.

"The reason we feel quite confident is that, when we look at most surveys, they say integration is among the top requirements. So when the purse strings are loosened, integration is one area that will benefit."

Iona's software knits the plethora of different computer systems firms use to run their businesses. Its products can integrate everything from handheld devices to mainframe computer systems. One of Iona's biggest customers is Boeing's commercial aircraft unit, which uses an integration broker and an application server platform from Iona to manage the business process of 7,000 computers and 70,000 staff.

Companies that do not integrate their systems often experience inefficiency, says Mr Morris.

"By using our software, firms like Boeing can make savings of up to $2 million per day."

Iona, which was spun out of the computer science department at Trinity College Dublin in 1991, is also benefiting from higher defence spending following the September 11th terrorist attacks.

Its integration software is used in a number of military applications. Last year Iona set up a specific subsidiary, employing only US citizens, to target the defence sector.

"Typically in one quarter about 10 per cent of our business is in defence. But in our September results this increased to 15 per cent representing a significant increase in our defence business."

This was due to the US administration releasing significant funds into the defence industry, added Mr Morris.

Iona's new subsidiary is staffed entirely by US citizens in order for it to qualify for special status enabling Iona to trade with the Department of Defence. This has helped Iona to clinch some important deals with the US Naval Sea Systems Command and the army.

A 12 per cent rise in US defence spending this year, and an expected multibillion rise next year, may enable Iona to claim a bigger slice of the defence market.

But Mr Morris is also hopeful that Iona will this year be able to break out of its core market based on the technology standard known as Corba and directed at the largest corporations. The firm will shortly unveil a suite of products and partner initiatives that will promote the use of Web services - a technology Iona believes will drive the new economy.

The products will build on Iona's strategy to provide integration using these Web services technology. But until the official announcement, which is expected in a few weeks, Mr Morris will not expand on the project.

The sophisticated nature of Iona's technology and the comparatively large average deal size, was probably a factor in the sharp fall in Iona's sales last year. It can take up to 18 months' negotiation for Iona sales staff to clinch deals with large companies and 60 per cent of the firm's business is for contracts worth more than $250,000, says Mr Morris.

Mr Morris does not believe the sharp fall in spending by corporations has resulted in lost deals, rather in delayed deals. Three big deals were pushed out during the June quarter last year but two of these have subsequently come in, and I believe the other one is not gone, he says.

Shareholders will be looking at next week's results announcement for signs that Iona is managing to claw back these sorts of delayed contracts. They will also look for any impact caused by the strengthening euro, which caused fellow Irish tech firm ParthusCeva to take a $500,000 hit in earnings.

Foreign exchange is an issue of hundreds of thousands rather than millions, according to Mr Morris.

Software firms are also probably much less vulnerable to a rising euro than other Irish manufacturers because of the higher margins in the business, he says.

On the broader issue of the software sector in the Republic, Mr Morris is reasonably upbeat. But he warns that the crucial issue over the next few years will be bringing the 250 indigenous software firms to the same scale as that of Iona.