Flagrant Foul!

But much to the dismay of I2 Technologies (ITWO), a maker of business-to-business software working for Nike, the swoosh footprint can also be squished into a teammate's head when the shoe company is in trouble.

On Monday afternoon, Nike announced that it expected its third-quarter earnings to fall at least 28% short of the consensus Wall Street expectation. And, perhaps trying to deflect shareholder wrath, Nike blamed I2 for part of the shortfall. I2 is overhauling Nike's supply-chain system in its footwear division, which provides 57% of the company’s overall sales. I2's system, Nike contended, directed the company to stop shipping shoe models that were selling well and produce more shoe models that weren't.

Shareholders left tread marks all over both Nike and I2. Nike was sent down 19.5% to $39.60, while I2 took a 22.3% pounding, falling to $27.56. And I2's bad publicity, combined with some downward earnings revisions from Goldman Sachs and Banc of America, caused investors to flee other enterprise-software companies as well. Manugistics Group (MANU), which provides supply-chain software for Nike's apparel division, fell 14.8% to $30.69, while B2B stalwarts Ariba (ARBA), Commerce One (CMRC), Siebel Systems (SEBL) and SAP (SAP) all fell as well.

Tuesday’s events were a continuation of a theme for I2, whose stock has lost more than 71% since hovering in the mid-$90s last September. Whether I2 and business-software companies are overvalued in general is a legitimate question: Even after the Nike-inspired sell-off, I2’s 2001 price-to-earnings ratio is still nearly 78. But the Nike news shouldn't have wiped out 20% of I2's value, analysts said Tuesday, let alone pummeled its fellow travelers. Complex software programs like Nike's often cause headaches along the way to full implementation, analysts said, so the news is unlikely to scare other companies away from buying software to make their supply chains more efficient. Plus, I2's own system wins rave reviews from Caterpillar (CAT), Dell (DELL) and 3M (MMM), three huge customers. Moreover, problems like Nike's are relatively easy to fix, and Nike intends to continue its supply-chain transformation with I2.

"Today was somewhat overdone," says CIBC World Markets analyst Brad Reback of I2's freefall. "A month from now, no one will remember Nike."

Indeed, virtually every company that embarks on a full-scale business-software project runs into problems. In the mid-1990s, many of SAP’s customers suffered fits as the company overhauled its resource-planning system. But few of SAP’s customers would complain that they aren't better off with SAP's system, which manages raw-material use.

That said, Nike's news isn't completely insignificant for I2, since happy customers are critical to future sales. But the company is known for doing a lot of follow-up work to keep its more than 1,000 clients content, says Catherine Moore, an analyst at CE Unterberg Towbin. For the December quarter, more than 60% of the firm's $378 million in revenue came from returning customers. Moreover, while the bad publicity might make I2's sales job a little tougher for prospective customers, and could slow down some software implementation, the Nike problems shouldn't kill any deals, analysts said. And I2 can answer any lingering questions about the Nike deal when it talks to analysts March 6 and 7. Reback says he’ll ask how big I2's operations were at the shoe maker, though he suspects it wasn't huge.

If he and other analysts like what they hear, I2's shares could have some bounce in their step once again.