QAD Auto Plant Software Sales In China Explode

SHANGHAI, Jan 12, 2004: Ben Blanchard writing for Reuters reported that U.S. factory software maker QAD expects sales in China to leap 50 percent in fiscal 2004 and by more than a fifth every year in the next decade, powered by an auto sector accelerating towards being a global export base.

Car plants sprouting up across the country, as multinationals race to match vehicle demand, will help fire up QAD Inc's revenue, Chief Financial Officer Daniel Lender said on Monday.

General Motors Corp, Volkswagen AG and Toyota Motor Corp are among those that have pumped billions of dollars into car making in the country, sparking fears of a glut that could hit profit margins.

QAD executives also expect China to become a vehicle production base for export around the world, once red-hot car demand -- the product of years of sustained seven-percent-plus economic growth -- starts to slow.

"We want to grow at least as fast as manufacturing in China," Lender told Reuters after a media round-table. "We see operations growing at least 20 percent per year over the next decade."

About 16 percent of its estimated global revenue of $225 million to $229 million for the fiscal year ending January 31, 2004, will have come from the Asia Pacific, he said earlier.

About a third of that, some $11.88 million to $12.1 million, will come from China. Global revenue hit $195 million the previous fiscal year.

Though the country is but a tiny portion of overall business, QAD has fixed its eye firmly on the massive market.

BLUE-CHIP CLIENTS

QAD, which supplies software to help companies run their factories, counts Philips Electronics NV (Amsterdam:PHG.AS - News; NYSE:PHG - News), auto parts maker Visteon Corp and Ford Motor Co as customers in China.

Main competitors include Germany's SAP and Oracle Corp.

It also has a strategic alliance with the information technology arm of Shanghai Automotive Industry Corp, and QAD supplies most of their joint ventures in China, including plants with General Motors and Volkswagen.

"Once the domestic market slows down and you have excess capacity, then they'll start to export," Asia Managing Director Tony Yip said. "We're very much focused on it as the fastest growing industry in China."

So fast that observers are wary of potential oversupply down the road, which would eat into prices and hence margins.

But QAD plays down this threat.

"It's a process the auto industry must go through to weed out weaker players," said Maxwell Miao, QAD's China country manager.

Also, it isn't just automobile plants that will require factory systems.

Assuming China's vaunted manufacturing machine continues to climb the technology ladder, the country should enlarge its 10 to 15 percent slice of global production, Lender said.

"We believe that in five to 10 years, about 30 to 50 percent of global manufacturing will be done in China," said Lender, who used to oversee QAD's Latin American operations.

"In order to have a long term, sustainable competitive advantage, low labour costs are not going to do it... You used to have to throw bodies at manufacturing. Now you have to use software."