Taken from a UK BB (Hemm. Scott)....
12/11/1998 16:20:51
Micro Focus : Hopes to reverse Y2000 result
By Karen Chan
Software company Micro Focus hopes new products launched this quarter
will improve the performance of its Year
2000 operations, but it admits the unit still faces uncertain
prospects. "Year 2000 demand in North America is not likely
to get significantly stronger, but we now have products that test and
we didn't in the third quarter," chief financial officer
Rick Van Hoesen told Dow Jones Newswires. The new products test the
success of products fixing the "millennium
bug." Since announcing earlier last week that lower-than-anticipated
demand for its Year 2000 products in North
America has hurt its latest third-quarter results, Micro Focus shares
have lost more than half their value, a move that
shocked its executives. The company said that the lower demand would
cause it to break even in the third quarter,
before charges from the recent acquisition of Intersolv could swing
earnings into the red. "I'm absolutely surprised by the
current valuation of shares in the company. ... 1 can't find any
rational valuations," said Van Hoesen. Thursday, the stock
was off 7/2p, or 6.6%, to 106p on volume of 2.3m shares. Van Hoesen
noted Year 2000 operations made up only
20% of sales in 1997 and said demand for Year 2000 products has always
been expected to decline, although not as
rapidly as it did.
However, analysts remain sceptical. "The downturn in the third quarter
only happened in the last month," said Keith
Woolcock, a technology analyst at Nomura International. "The odds are
that loss of momentum will continue into the
fourth quarter. ... When you have a drop like that and problems, it is
prudent to wait and see. " Van Hoesen said
investors shouldn't bet on the group's fourth quarter being much
worse. But he wouldn't give specific earnings forecasts
ahead of third-quarter earnings due December 2. Analysts say the drop
in demand for Micro Focus' products was due
to a combination of strategic mistakes and stretched management
resources. The company's relatively new management
team has been busy integrating Micro Focus with Intersolv, the US
information systems company it merged with in
September. "When doing a merger like that, you're bound to be
introspective ... It was a classic case of taking your eye
off the ball," said Woolcock. Van Hoesen admits Micro Focus didn't pay
enough attention to its Y2K business and even
ended up losing some key staff. 'We did lose some Y2K specialist staff
back in June, but we felt that we had addressed
the problem," said Hoesen. Micro Focus lost half a dozen key sales
people to a company specialising in Y2K products,
including the head of its US Y2K operations Chris Christedes. And Van
Hoesen agrees the merger did consume a lot of
management time and effort. "There might be some effect,"
he said.
Analysts said disgruntled shareholders may also deal the company a
further blow by taking legal action, as has occurred
in other instances where a recently merged company has suffered a
sharp fall in share price. Hoesen said he is not aware
of any such moves at present.
One analyst, who didn't want to be named, said at present levels the
shares look cheap as a speculative buy, but on
fundamentals, he wouldn't touch it. "It's like buying Baan," he said.
"You are buying volatility." Micro Focus closed 6p,
or 5.3%, down at 107 1/2p |
