Bungled ERP installation whacks Asyst

A troubled ERP installation at a joint venture in Japan has forced Asyst Technologies to restate earnings and spend up to US$2 million for damage control. The semiconductor automation products maker also faces a possible delisting from the Nasdaq Stock Market.

The ERP problems came to light when US-based Asyst announced its fiscal second-quarter results on Dec. 20, seven weeks later than planned.

Company spokesman John Swenson said the delay was largely the result of a bungled ERP data-conversion project at the Asyst Shinko unit. He declined to identify the ERP program. The flawed upgrade at ASI affected the entire company's accounting processes and prevented it from closing its books to meet quarterly reporting deadlines, Swenson said.

"It's a classic problem with ERP systems -- everything you do has a financial impact," said Bill Swanton, analyst at Boston-based AMR Research. During conversion, data can be lost and "you end up with garbage," he added.

As a result of the upgrade problem, Asyst had to to revise its first-quarter results and increase its net loss by US$1.4 million. And because it was late in filing a required 10-Q form for the second quarter with the U.S. Securities and Exchange Commission, Asyst had to appear before the Nasdaq Listing Qualifications Panel on Dec. 15. Although no action has yet been taken by Nasdaq, "the matter remains open," according to a company statement.

Asyst runs its own ERP system separate from the Japanese unit. That system has performed without trouble. ASI functions as an independent company and has to report its own finances, Swenson said.

Asyst paid US$65.7 million in late 2002 for a 51 percent stake in ASI. Japan-based Shinko Electric Co. owns the remaining 49 percent.

In-house problems

ASI had relied on a third-party IT services provider until last June, when the unit brought the function in-house with the implementation of the ERP system.

That implementation, which was apparently still under way when the company's second quarter ended on Sept. 25, led to the reporting delays.

Part of ASI's problem stemmed from the complex nature of its work selling automated material-handling systems and providing services to semiconductor customers. ASI's contract projects can involve many individual work orders, said Swenson. After the ERP data conversion, the worth of some of these orders was reset to zero in the new financial application.

"The conversion process was not managed well," Swenson said.

Rebecca Wettemann, an analyst at consultancy Nucleus Research, said that companies often underestimate the importance and cost of planning and consulting on ERP projects.

In the company's quarterly earnings call on Dec. 21, Asyst Chief Financial Officer Robert Nikl attributed the specific causes to errors in table mapping and inaccurate posting from the company's subledgers.

So severe were the problems that Asyst had to send a team from its own finance operation to Japan, as well as troubleshooters from the ERP vendor. Working "shoulder to shoulder" for seven weeks with the ASI staff, the turnaround team "had to retrace and rebuild the financial records for the quarter," Swenson said.

During the turnaround process, Asyst also found that as a result of "material accounting errors" made by personnel at ASI, its own first-quarter numbers were untrustworthy, requiring a restatement, the company said.

For instance, ASI had understated the cost of the products it had sold, leading to the revision of its first-quarter net loss to US$2.3 million, up from US$900,000. Nikl said this change stemmed from how the company reported costs -- such as freight expenses -- that weren't related to a specific project.

The full costs of resolving the ERP and financial-reporting issues, including legal fees, could be as high as US$2 million, the company said.

"We believe the ERP issues have been addressed, and we'll be able to do our financial reports in a timely manner," Swenson said. The second-quarter 10-Q form has been filed, and Asyst said it believes it's now in compliance with Nasdaq's listing requirements.

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