UNFY - UNIFY CORP >>Stock to Watch <<
UNIFY CORP. San Jose, California Software Firm Gets New Start Amid Net Boom
investors.com
Date: 3/4/99
Author: Clifton Linton
Imagine how much time and money companies could save if their employees filled out expense reports electronically.
With the press of a button, workers could send the form to the accounting department and presto - it's done.
Many companies already have expense-account software on their employees' desktop computers. But in most cases, the program doesn't connect with the central office, so the accounting staff still has to hand-process the forms. And if the software is upgraded, technicians must visit each branch to update the computers.
Unify Corp. makes off- the-shelf software that helps automate these mundane tasks via Internet and intranet applications. The software runs on computer servers, providing a bridge between mainframe computers, databases and the Web. It also can be used to set up electronic commerce sites.
Only recently has interest begun to rise for Unify's products. Many companies are trying out its software in pilot programs as they learn how to use the Internet as a business tool. In retail, however, the Web is more widely accepted as a selling channel.
''It took a while for the market to need their product,'' said analyst Shawn Willard of Black & Co.
Unify believes once companies see the benefits of its software, demand will rise. It addresses a $250 million potential market, Willard says.
The key is for Corporate America to realize that the Internet is here to stay, and that it's not just for companies like online bookseller Amazon.com Inc. About 2,000 customers have bought Unify's software.
''The market is very huge,'' said CEO Reza Mikailli. ''Amazon.com is the tip of the iceberg. We will get to the next tier (of businesses), and then the floodgates will open.''
It appears that has started. In the fiscal third quarter ended Jan. 31, Unify earned 15 cents a share, up from 1 cent a year ago. Sales rose 24% to $8.1 million.
Analysts expect the company to earn 41 cents a share in fiscal 1999, vs. a loss of 29 cents a year ago, First Call says. Earnings should rise 59% to 65 cents in 2000. Unify trades as UNFY near 12.
The first companies likely to adopt this new technology will be in the Fortune 1000, says analyst Sally Cusack of International Data Corp.
Unify's main rivals include IBM Corp., which makes custom software, Allaire Corp. and Forte Software Inc. Few others focus exclusively on this kind of off-the- shelf software.
That should give Unify a leg up with product development, Mikailli says. ''We are 12 months ahead of anyone I know,'' he said.
Unify's latest products, which create Internet applications, should cover its development costs and contribute to profits by year-end, Mikailli says.
Unify's future wasn't always so bright.
The company's sales and profits started falling soon after its initial public offering in 1996. Unify had to write off $4 million in lost sales when several Chinese clients declined to pay for the software. And new product orders were slow to materialize.
As Unify struggled to regain its footing, it realized customers wanted more Internet-based options. So the company took advantage of the setback to redefine its course.
''Two years ago, we started focusing on the Internet. We put the client-server software behind us,'' Mikailli said.
The company also shifted its marketing strategy, moving to a reseller network from a direct sales force.
But even in the worst of times, Unify managed to stay out of debt. Today it has $10.5 million in cash, which it could use for acquisitions, Mikailli says.
The company's fortunes improved last year, as more businesses began selling goods on the Internet and using intranets to conduct business.
In December, British accounting firm Grant Thornton U.K. licensed Unify's software to help its 2,500 employees with time sheets, billing and accessing the corporate databases. And last month, Sumitomo Metal Industries Ltd. of Japan adopted the software for its 6,000 workstations, PCs and servers. Sumitomo will use the software to manage its computer assets.
Unify's other customers include National Westminster Bank PLC, Merrill Lynch & Co. and Boeing Co. The company typically charges $50,000 to $100,000 per license, plus $500 for each user. ''That's where the real money is,'' Mikailli says.
About 65% of its revenue comes from software licenses and 35% from services, which include maintenance and consulting. ''That model may change. I would like to see more like 75% of revenue from licenses and the rest services,'' Mikailli said.
The company has an international outlook. About 50% of its revenue comes from the U.S., 40% from Europe and the rest from Japan. But for now the U.S. should remain Unify's strongest market, Mikailli says.
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(C) Copyright 1999 Investors Business Daily, Inc.
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