More news:
The Financial Post, Friday, June 27, 1997
Corel Corp. is courting the favor of analysts and software
reviewers with a strong new version of WordPerfect and a
long-awaited writedown that promises to lift the company's profit
in the months ahead.
But Corel still has not captured the corporate mindset and market
share in the U.S. that it promised.
Still, favorable software reviews and stock upgrades from several
analysts gave Corel president Michael Cowpland good reason to be
happy on a conference call with analysts Tuesday, following the
release of the company's second-quarter results and launch of
WordPerfect version eight.
The second quarter was good to Corel. It began distributing
WordPerfect 8 just days before the quarter ended May 31. It wrote
down US$113.7 million worth of carrying value on old versions of
WordPerfect and sold its marginal line of educational and
entertainment CD ROMs to I. Hoffman & Associates Inc. It also spun
off Corel Computer Corp., which will create and sell Corel's
network computer and video conferencing products, creating a
market for Corel's software written in the Java programming
language.
Corel lifted revenue to US$100.4 million in the second quarter, a
15% increase on the same period in 1996.
But at least part of that hike came as a result of the shipment of
WordPerfect into what is known as the ``pipeline'' -- Corel's
system of distributors. It is an unconventional approach to
reporting revenue and makes it difficult for analysts to calculate
accurate forecasts, says David Wright, director of research at
Marleau Lemire Securities Inc.
``If Corel didn't ship right at the end of the quarter {and report
its revenue as it ships}, it wouldn't have such high day sales
outstanding,'' Wright explains. ``It's not a practice others
engage in.''
Corel makes significant provisions to cover uncertainty. For
example, during its second quarter it set aside US$5.7 million for
doubtful accounts and US$17.9 million for returns, on revenue of
US$100.4 million. Revenue for the period also included Java
technology exchanges with other firms, which Corel books as sales.
The promise of WordPerfect 8 and efforts at cost containment have
convinced investors to take a second look at Corel (COS/TSE).
Since bottoming at about $7 around the time of the company's April
18 annual meeting, the stock has inched up to yesterday's close of
$8.90. That is still about half its 52-week high of $16.55 of a
year ago, when the euphoria of the WordPerfect purchase from
Novell Inc. was still strong.
About 70% of Corel's revenue now comes from its productivity
applications -- word processing, spreadsheet, time management and
communication software used by businesses. Most of the rest is
from its graphics software, including the flagship CorelDRAW -- a
new version of which is scheduled for release in the fall.
Due out in August is a new version of Corel Office Professional,
corporate management software based on the new version of
WordPerfect.
The new releases mean Corel will continue to spend 20% of revenue
on advertising and promotion, especially in the U.S. market, where
the bulk of its sales are made.
But all of Cowpland's talk of a David and Goliath battle between
Corel and competitor Microsoft Corp. has not translated into
significant inroads into the lucrative corporate software market,
in which Microsoft is a dominant force. Nor has Corel captured
much attention from U.S. analysts. Almost all questions in
Tuesday's conference call were from Canadian investment
professionals.
Cowpland says that is changing with the launch of WordPerfect 8.
``It's sending a message that this is a good bandwagon to be on
and it's got a very good future,'' he says.
Gaining the attention of U.S. analysts and investors was the main
reason Corel chose to write down the value of old versions of
WordPerfect. Corel estimates it will result in increased profit of
US8 cents a share in each quarter of the next four years.
Analysts agree the accounting change should make it easier to
attract U.S. attention. ``Analysts don't like to cover companies
who don't report profits,'' Wright says.
``We're going to be in a better position to see the real earnings
of the company after this writedown,'' agrees Pierre Boucher,
technology analyst with HSBC James Capel Inc. ``This puts them on
an equal footing with the U.S. companies.''
Cowpland places great stock in the fact Corel updates WordPerfect
every 12 months, compared with a 24-month turnaround for Microsoft
Office and 36-month updates for Lotus's Office Suite.
However, the breakneck pace means research and development costs
continue to eat up 22% of revenue -- about the same amount as
selling, general and administrative expenses.
A big chunk of the R&D is being transferred to Corel Computer
Corp., a spinoff that opened its doors this week. The new company,
wholly owned by Corel, will unveil its first network personal
computer in August, Cowpland says.
Corel Computer's balance sheet will not be shown separately from
Corel's for the next few quarters. However, Cowpland plans to take
the spinoff public as soon as it reaches a run rate of US$50
million to US$100 million. ``That can happen pretty fast in
hardware because of the huge demand for network computers.''
Corel's cash position, meanwhile, has marginally improved. It stood
at US$20.6 million at the end of the second quarter, up from US$12
million three months earlier. The company's net debt load, less
cash, stands at US$21.5 million.
``I'm pleased to see the improvements on the cash position side,''
Boucher says. ``But I'm still looking for more improvement because
the current cash position is not sufficient for a company of this
size.''
Because of the uncertainties surrounding Corel Computer and the
demand for Java-based products, analysts have a wide range of
earnings estimates. A mean forecast from 13 analysts cited by the
company suggest revenue of US$427 million for fiscal 1997 and
earnings per share of US14 cents.
COREL CORP.:
CEO: Michael Cowpland
Ticker: COS
Listed: TSE
Head office: Ottawa
Tel: (613) 728-8200
Happy Investing!
Vanni |
