Ottawa Citezen Article
ottawacitizen.com
Corel draws strong vote of
non-confidence from investors
Share price plummets after company warns of
more losses to come
Andrew McIntosh
The Ottawa Citizen
Shares of Corel Corp., battered by bad news during the past two months, fell another 19 per cent yesterday after the Ottawa software company warned of more losses in its fourth quarter because of slow sales. Corel shares were down $1.35 each to $5.45 in heavy trading on the Toronto Stock Exchange. The stock is at its lowest since March 1993. Corel shares have sunk 38 per cent from $9 each since Corel announced an overhaul of its strategy for the Java programming language last month, then twice said it expected results much below forecasts and a slow year in 1998.
Steve Frankel, a Boston-based software analyst at Adams Harkness & Hill, said yesterday he has dropped coverage of Corel and declined to comment. "I have given up trying to understand," Mr. Frankel replied when asked why Corel's fortunes could experience such a dramatic reversal. When Corel chief executive Michael Cowpland announced on Sept. 10 that Corel would lose $31 million in its third quarter, he said sales would "surge" in the fourth quarter amid a flurry of "exciting, major corporate announcements."
Less than two weeks later, Corel said it expected to lose another $15 million to $20 million in its fourth quarter ending Nov. 30 because of slow sales. Instead of fourth-quarter sales of $100 million, Corel now expects sales of $70 million to $75 million, saying it had huge volumes of software products that were shipped to distributors and retailers but still unsold. Three software industry analysts from respected brokerage firms said such incidents have seriously hurt Corel's credibility in the investment world. "The sales channel must be as stuffed as a Thanksgiving Day turkey," said one analyst who requested anonymity.
Corel executives confirmed sales channels are stuffed.
Corel chief financial officer Charles Norris said the company more than doubled its provisions for unsold or returned products in the third quarter to $37 million.
Also concerning analysts was the growth of selling, administrative and general expenses at Corel in the first nine months of 1997. Those expenses hit $64.2 million, up 26 per cent from the $50.8 million incurred under that category in the first nine months of 1996. Despite the increased spending, the company's sales results were still poor.
Mr. Cowpland said the results were poor because Corel is in transition, shifting the focus of its sales efforts to big corporations instead of selling to consumers through retailers as it has done in the past. In doing this, Corel is going against Microsoft, a move considered risky.
Almost lost in yesterday's market selloff: Corel said it has sold a line of consumer, computer-aided design and diagramming software to International Microcomputer Software Inc. (IMSI), based in San Rafael, California. Corel will get $1 million U.S. in cash, almost $4.6 million in IMSI stock and future royalties of three per cent on subsequent sales of the Corel products. The deal, expected to close on Sept. 30, will also see IMSI hire about 20 Corel workers and set up a research and development centre in Ottawa. The remaining 20 Corel employees who work on the products sold to IMSI will be reassigned within Corel, said Corel spokeswoman Carrie Bendzsa. "There will be no jobs lost," she said. Mr. Cowpland said the deal will allow Corel to sharpen its focus on its core WordPerfect word processing and spreadsheet software, its Draw graphics software and new technologies slated for the corporate computing world. The software that IMSI acquired from Corel include Corel's CAD Modeler, CAD Technical, FLOW, Click & Create, Lumiere, Family Tree Suite, Family Publisher and Personal Architect, the companies said. Sales of them accounted for less than 10 per cent of Corel's $55.8 million in sales in the third quarter, during which the company lost $31.4 million. IMSI chief executive Martin Sacks said more than 70 per cent of IMSI's revenues are derived from computer-aided design and graphics products and that the Corel products will be an extremely good fit with IMSI's existing line. |
