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The Dallas-based business software company said in a statement that Brady will stay on in an advisory capacity and as a member of its board of directors.
Brady's departure comes the day before the company is set to release its first-quarter earnings report.
"At this stage of my career and for personal reasons, I made the decision that it was the right time for me to step aside as the leader of i2," Brady said. "I will certainly miss working day-to-day with our outstanding customers, partners and employees and look forward to consulting with Sanjiv to ensure a smooth transition."
Brady, who joined the company in 1994 and became CEO last year, provided no details about his future plans.
As chief executive Sidhu will work to refocus i2's sales and development organisations to ensure the highest level of customer success, the company said.
I2 said Sam Nakane, who was recently named chief operating officer, will work with Sidhu to manage operations. I2 also announced that Tom Cooper, president of Americas Sales, is leaving the company. Cooper will stay on, however, while i2 develops a transition team.
Earlier this month, i2 lowered its revenue projections for its most recent quarter to between $165m (£115m) and $170m (£118m) - down from the $357m (£249m) the company posted a year ago and below the $186m (£129m) analysts were anticipating.
I2 predicted that its pro forma loss for the quarter would be between 7 and 8 cents per share.