Corel is not alone in the pursuit of markets share competing with Microslop. "Netscape will report a total loss of $85 million to $89 million for the quarter." and ""The critical issue is their ability to diversify their revenue growth,"
Netscape plunges as loss seen from Microsoft rivalry
canoe.ca
PALO ALTO, Calif. (Reuters) - Netscape Communications Corp.'s stock plummeted Monday to
its lowest price ever after the Internet software company said competition with Microsoft Corp. will
result in its first quarterly loss.
Netscape, best-known for its Navigator and Communicator Web browsing software, also said it
plans to lay off an undetermined number of employees -- a first in the 3-year-old company's history
-- and take a $35 million restructuring charge.
Although Netscape executives expect a profitable 1998, analysts said it will not likely recover
quickly. To compete with Microsoft effectively, Netscape would have to begin giving away its
flagship browser, forgoing about 13 percent of its revenue.
"Microsoft giving away its browser is a huge, huge problem, one that is extremely difficult for
Netscape to overcome," said Bruce Smith, analyst at Merrill Lynch & Co. Inc. "I think the stock is
overvalued, even at these prices."
Netscape's stock sank $4.81, or 21 percent, to $18.56 on Nasdaq trading of 13.9 million shares.
It was the second most active issue on U.S. markets and one of the biggest percentage losers.
Earlier, the stock traded at an all-time low of $17.75.
Netscape, based in Mountain View, Calif., said it expects to report a loss from operations of $14
million to $18 million, or 15 cents to 19 cents a share, for the quarter ended Dec. 31.
With $52 million in acquisition charges and $35 million in restructuring costs, Netscape will report
a total loss of $85 million to $89 million for the quarter. It would be the first time Netscape has
reported a loss from operations since going public in August, 1995.
Wall Street had expected Netscape to report a profit of 14 cents a share, according to a recent
analyst survey by Zacks Investment Research. Revenue will be about $125 million to $130 million,
far less than the $165 million Wall Street was expecting.
Netscape blamed the loss on competition from Microsoft, which distributes its competing Internet
browser, Internet Explorer, for free. Netscape said sales from its "stand-alone client" business --
which mostly represents retail browser sales -- decreased to 13 percent of the total revenue, down
from 18 percent in the third quarter.
Asia's economic troubles also contributed to weaker sales.
"While our products are doing extremely well in the marketplace and we're fighting the
market-share battle effectively, the revenue is being diminished because of price pressure from
Microsoft's free browser," Mike Homer, Netscape vice president of sales and marketing, said in a
telephone conference call.
In the past year, Netscape has been changing its business to rely less on browsers and more on
so-called enterprise software products, which big companies use to store and distribute business
information and to route e-mail.
But Netscape said enterprise software sales also were weaker than expected because of pricing
pressures.
Analysts said Netscape is losing sales directly because of the shrinking popularity of its browsers,
which cost about $50 for a single copy. Microsoft is snagging potential customers because it gives
its browser away.
Browsers, the key tool for viewing information stored on computer networks, lead to sales of
higher-margin, higher-priced software products.
Netscape's decision to make its browser free in response is "imminent," predicted David Smith,
vice president of Internet strategy at Gartner Group Inc., a technology consulting firm.
"In the long term, Netscape's businesses are highly reliant on the company maintaining a majority of
the browser market share," Smith said.
According to market researcher Dataquest Inc., Netscape's browser market share fell in the third
quarter to 57.6 percent, its lowest point ever, while Microsoft's rose to 39.4 percent in the same
period.
Microsoft's stock Monday slipped 75 cents to $130.38. It was among the most active shares on
Nasdaq, with 9.9 million shares traded.
Netscape executives said part of their strategy will be to continue their legal fight. In late 1996, the
company asked the Justice Department to investigate Microsoft's bundling of its browser software
with its Windows operating system, which is included with almost every new personal computer
sold.
In October, the Justice Department filed a lawsuit against Microsoft, asking the courts to stop the
world's biggest software company from tying the use of Windows 95 to the use of Internet
Explorer, which bars companies like Netscape from competing. The case is pending.
Following Netscape's warning, several analysts slashed their earnings forecast for Netscape.
While Netscape could return to profits as early as the first quarter, it remains to be seen whether
the company can thrive in a market dominated by Microsoft, said David Yoffie, professor at
Harvard Business School.
"The critical issue is their ability to diversify their revenue growth," Yoffie said
Mr. Bean |
