From the Sunday edition of Ireland's Sunday Business Post ..
Are the chips down for Iona?
Angry investors, puzzled analysts, vague answers from
management. Ruth Marchand asks why shares in Iona
Technologies, once a Stock Exchange darling, crashed last week
Just after 2pm last Thursday an announcement appeared
on the screens on stockbrokers desks, sending the Irish
investment community into shock. Iona Technologies,
the blue chip Irish success story, announced a profit
warning.
One week before this surprise announcement, Chris
Horn, chief executive of Iona Technologies accepted the
award for Company of the Year from Business &
Finance magazine at a black tie function in the Berkeley
Court Hotel in Dublin. Following the announcement,
Horn said he was "thrilled and astonished..(it was) a
fantastic honour".
Until then it was virtually a blemish-free record for the
former Trinity College campus company: it had posted
strong results for eight successive quarters since its
Initial Public Offering (IPO) on Nasdaq in February
1997. It was consistently meeting analysts' expectations
and had never disappointed the market.
No one could ever have imagined it would post a net
loss per share . The market had been expecting strong
growth; instead, it was told that revenue would be
virtually flat at between $21.5 and $20.8 million in the
first quarter and that the net per share loss would be
between $0.03 and breakeven.
Dealers all over the world scrambled to get on the
phones and try and find out what was going on. The
share price started dropping on the screen before the
Nasdaq market even opened. It is possible for shares to
trade in the "grey" market, trading which occurs outside
normal market hours whose outcome is reflected
immediately on opening.
Iona shares fell immediately by almost 45 per cent from
$30.83 to $16.88. Just two months ago, when it was
trumpeting new products at a conference in San
Francisco the share price reached a high of $50.5. No
one knew what was going on. Should they sell, buy or
wait and see? A conference call was scheduled by the
company at 4pm, half an hour after the Nasdaq market
opened in New York, between the company and
analysts.
The call began with the chief executive of the company
Chris Horn reading through the same statement which
had been sent across the newswire. Questions were then
permitted from stunned analysts who asked for any
guidance or insight into the reason for the shortfall. The
answers were similar:
"At this point we cannot give an answer, our analysis is
still ongoing, we will revisit that question on April 14".
That is the day when Iona is due to publish its quarterly
results.
Analysts tried to rephrase the question or ask more
questions in an effort to extract any information, but to
no avail.
Horn did say that during the quarter "a number of orders
that we expected to close did not close" but he wouldn't
say any more. He was unable to identify which orders did not
materialise, their size or product area. It was still too
early to tell, he said.
How could the management not have seen any signs, the
analysts asked, arguing that there must have been some
sort of an indication. The response from Horn was again
vague, saying that these orders would have been booked
very late in the quarter thus explaining the lateness of
the announcement.
The shares hovered around the $16 level during the call,
as the market waited. Then they dropped down to
$14.94. The market was not happy with the lack of
answers. If this was just a "screw up" this quarter, a
New York analyst said, the management would have
made that abundantly clear immediately. Was there
more to this than met the eye, the analyst asked.
Horn has a reputation of "getting right to the point",
according to one analyst, but he appeared to lack
confidence. But Horn did say that the problems were
due to "internal problems in managing the transition to
the enterprise sales model".
On February 1 investors and customers attended the
Iona World conference in San Francisco, an event
which was intended to announce new products and
update them on the company's development. Iona said
that it was now entering a "new phase of growth",
having become a fully fledged global technology
company. One Dublin analyst commented following the
conference that Iona was now being viewed by the
investment community as an established successful
player.
At the conference the company promoted a corporate
rebranding initiative which focuses on enhancing the
"enterprise sales initiative." Asked what this means,
Tom Murphy public relations manager at Iona said that
as Iona's technology has become increasingly accepted
throughout the industry, "there has been a necessary shift
in the sales force to enterprise sales" .
Internal problems in the management of this sales
initiative were the "primary" reason accounting for the
fall off in revenue, Horn said during the conference call.
Iona World was a high point in the company and several
directors took advantage of the upsurge in the share
price to dispose of some of their shares. Under Nasdaq
rules, directors are obliged to indicate that they are
selling shares but do not have to give the time of the
deal or the price which was achieved.
The volume of shares traded in Iona in one day is
usually about 150,000. During the conference call the
company refused to comment on any movement in its
share price or any unusual rises in volume.
Dublin analysts are unclear as to why the management
didn't pick up the problems any sooner in the quarter.
Iona said it was "extremely disappointed with the
revenue results, but said the fall off was "not a result of
shortage of feet on the street".
Dublin analysts expressed concern that if Iona was
unable to close the deals then competitors must be
picking up the slack.
One analyst warned that rumours would escalate over
the coming weeks, because management had failed to
identify the exact cause of the revenue shortfall sooner
than it did. The same analyst does not "expect the
management to be particularly forthcoming in the next
two weeks".
Analysts may be puzzled and disappointed, but they
agree that Iona is still a very good company.
The question remains: is this a blip in its performance
to date, or is this a new phase of Iona Technologies?
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