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Technology Stocks : INPR - Inprise to Borland (BORL) -- Ignore unavailable to you. Want to Upgrade?

To: John Solder who wrote (4339)	2/7/2000 5:09:00 PM
From: Tom C	Read Replies (1) \| Respond to of 5102

John, Here is an example of the type of articles I find that give me the same overall impression about CORL that you seem to have. It looks to me like the analysts do not trust the CEO. fnews.yahoo.com Industry Analysis Jan 19, 2000 Internet: Corel Beats Expectations or Did It? Senior Analyst: Garrett Bekker (1/19/00) In early December, Corel (NASDAQ:CORL - news) CEO Michael Cowpland let “slip” that it is on track to meet its quarterly number with revenue of approximately $77 million. Shortly thereafter, the company pre-announced that it would miss these numbers by a long shot, with revenue falling to about $61 million from $71.3 million in the previous quarter, and earnings per share dropping to a loss of $0.14 from a gain of $0.26. Then yesterday the company announced that it “beat” these newly lowered numbers with earnings of about $0.07 per share. The only thing predictable about Corel is that it's completely unpredictable. After a staggering run-up in late November/early December during which Corel's stock quadrupled to $44.50, the earnings warning triggered a plunge in the stock's price that reduced Corel's market value by nearly two-thirds. However, a closer look at the company's release shows that the positive surprise was solely due to a $14.5 million tax-loss carryforward resulting from losses sustained during 1993 to 1995. If you back out these tax reductions, Corel's earnings would indeed have come in around ($0.14), as initially expected. Careful readers will note that Corel listed $5.2 million of tax gains as a separate line item. However, the bulk of the gains ($8.9 million) were not broken out separately, but were accounted for as a reduction in research and development (R&D) spending. Absent the tax gains , R&D would have come in at around $12.4 million instead of the $3.5 million actually reported. The main reason for the shortfall was a 14.5% decline in revenue to $60.9 million from $71.3 million last quarter. Specifically, the lower revenue was due to a $13.4 million ($U.S.) decline in sales of its productivity applications (WordPerfect Office) to $25.5 million versus $38.9 million last quarter. Graphics applications (CorelDRAW, PHOTO-PAINT) were flat at $38.9 million. We are a bit concerned about the revenue results, since this is the second quarter of disappointing top-line growth. Last quarter revenue was nearly flat, edging up a scant 1% from $70.5 million in the prior quarter. With expense cutting nearing its limits, Corel will have to grow the top line to keep earnings per share expanding. The company speculated that the slowdown in office productivity sales was due to industry-wide Y2K fears among corporate buyers. Corporate buyers dominate sales of productivity applications, whereas graphics are mainly purchased by small and home office users (SOHO), which were less sensitive to Y2K. As evidence that the sales drop-off was due to industry-wide and not company-specific factors, it was revealed that Corel's WordPerfect Office Suite gained in market share from 11.7% to 13.8% during the month of November, according to market research firm PCData. Expenses also came in higher than expected, in part due to $3.3 million in inventory adjustments and increased advertising spending to promote its new Linux initiatives. Although expenses came in higher for the quarter, the company noted that expenses for previous quarters fell faster than originally expected, and thus on an annualized basis were right on target. Total operating expenses for the year came in at approximately $170 million, a $50 million reduction from $220 million in fiscal 1998. One bright spot was that sales of the new Corel Linux Operating System (OS) totaled $3.2 million despite only being in stores for about three weeks of the quarter. Management noted that about $1 million was spent on R&D and less than $1 million on other costs, so the OS is already making money. New product flow should be strong during the next few months, with new versions of the Office Suite rolling out during March/April and CorelDRAW and PHOTO-PAINT coming out during the third quarter. Some back-of-the-envelope calculations suggest that Corel's Linux revenue currently accounts for roughly 5% of the total revenue. Cowpland's five-year goal is for Linux to account for 50% of Corel's revenue. With the Linux OS doing $3.2 million in just three weeks, we think this target is well within reason. If we extrapolate the Linux results over a longer period, $10 million to $12 million in Linux related revenue per quarter isn't out of the question. Holding other factors constant, this would put Linux at close to 20% of overall revenue. Viewed from another perspective, this means that more than three-quarters of Corel's revenue will continue to come from Windows related products. If the slowdown in that area isn't temporary but is due to more secular trends, for example a maturing of the markets for its Windows products, this could offset any strength from its Linux foray. Another area of concern is DSOs (Days Sales Outstanding), which rose to 76 during the quarter from the previous range of 60. The company noted that DSOs are currently back on track and attributed the increase to customers looking to conserve cash at year's end. We would keep an eye on this metric, as continued weakness would be a sign that the company is having trouble collecting on its receivables. Bottom Line: Beating your pre-announced warnings with one-time tax gains is nothing to crow about, but then again this isn't out of line with Corel's penchant for chest thumping. Overall, we'd rate the quarter neutral to slightly positive. With the stock trading up $1.44, to $21.44, in early afternoon trading, apparently the market agrees with our assessment. Regards Tom

To: John Solder who wrote (4339)	2/7/2000 5:22:00 PM
From: Maher Sid-Ahmed	Respond to of 5102

If the new company (Corl + Borland) was an IPO today, how much do you think WS would pay for it? The new formed company owns: 1. A Linux OS. 2. WP which is the standard word processor among lawyers and segments of the US and Canadian government. Total customers around 50 million. WP is available for Windows, Linux and Apple OS. 3. The best development tools in the business (Delphi + C++ Builder, JBuilder, Visigenic, ASP, etc.) available for Windows, Solaris, and soon Linux. 4. Some of the best application software in the industry. 5. A scalable database used by the likes of Ericsson. I would guess WS would easily have paid over $200/share. However, nobody trusts Cowpland and that is the big problem. Maher