Uhhh Pete .... I'm not so sure about the 1/2 a buck US .....
(I think I'll stick to MSFT, INTC, CPQ, ORCL and DELL ...)
>>>>>>>>>
Prospects For Corel Turnaround Bleak
(02/23/98; 10:36 a.m. EST)
By Gabrielle Jonas, TechInvestor
Corel is a prime example of how quickly fortunes can turn
for a high-flying tech company.
In late 1995, shares of Corel peaked at about $19 a
share. The following year, the company, based in Ottawa,
Canada, was whipping a red cloak in front of Microsoft,
taunting it with claims that it would one day take over the
office suite software market. The company had just
bought WordPerfect from Novell and actually outsold
Microsoft Word for a brief time.
Today, Corel [COSFF] trades in the $2 to $3 a share
range and has little credibility on Wall Street. In late
January, the company reported a fourth quarter loss of
$67 million, $1 a share, on revenue of U.S.$43.6 million.
Corel's plunge has been caused by a host of factors, such
as the failure of its Java office suite, a lack of a strategy,
hoardes of debt, and the arrogance -- some would say
stupidity -- to think it could compete with Microsoft.
Nevertheless, Corel officials are optimistic for 1998 and
are looking to its core graphics software to make the
company profitable.
What Went Wrong
Corel has made plenty of tactical errors, but the failure of
its Java office suite sticks out as the largest, analysts say.
Corel sunk a lot of money and time -- about 14 months --
into the development and marketing of a Java office suite,
only to shelve the product. Corel had problems recreating
its office software in Java, failed in the channel, and was
hampered by what one analyst calls the "tacky" marketing.
Wrong move, says Joe Vejvoda, an analyst with Loewen,
Ondaatje, McCutcheon, in Toronto. "That takes away
momentum, that discourages a lot of the people that were
working on that, and it's kind of tough to bounce back,"
he says. "They sent a bit of a message down to the
Street."
The failure of the Java office suite
also had Corel grasping for an
identity. Corel then chose to
enter the Java hardware
business.
"That sent a mixed message to a
lot of investors. It's very
confusing as to what the actual
company strategy is -- you're
leaving Java software behind, but you're jumping on the
Java hardware bandwagon," Vejvoda says. "Why do that
when there's no real Java full suite software out there that's
commercially viable yet?"
Facing an uphill battle in the hardware market, Corel is
also looking to its graphics software to help the bottom
line. It's a strategy that stands a better chance.
"They've got people who are used to buying Corel Draw,
people who are used to buying WordPerfect, and who
really don't want to go out and learn anything else," says
Chris LeTocq, a senior analyst with Gartner Group
Dataquest, in San Jose, Calif.
The lack of direction and cash has given Corel little
chance against Microsoft.
"Microsoft is claiming that, look, if you go to Corel's
products, you're learning a dead-end product, because
they won't be around," Vejvoda says. "You can get very
antagonistic with your marketing campaign."
Analysts say Corel has to work much harder to gain
customers because it has been in a state of flux. Corel can
beat competitors solely on price, analysts say. And that
leads to cash flow problems.
Nevertheless, Corel's president and CEO, the
ever-confident Michael Cowpland, says "the company
remains strong and well-positioned for a successful 1998."
Vejvoda wants to hear more. "They really haven't outlined
a detailed strategy," he says. "Cowpland has said, 'There's
some exciting things yet to come.' The Street's got its ear
to the ground, and we're waiting to see what he can come
up with, because it's definitely going to be an uphill battle
for them.
"They do need some sort of miraculous turnaround as far
as some sort of strategy."
Upside Potential?
Most analysts paint a bleak picture of the company's
prospects. Much depends on the company's net sales, a
factor difficult to discern in the fog of so many unusual
charges, including write-downs and reversal sales for
inventories.
Duncan Stewart, portfolio manager for the Navigator
Canadian Technology Fund, in Toronto, has it down to a
formula.
"If net sales are around $80 million, the company is on a
going-forward basis, more or less break-even," he says.
"But if it's less than that -- and that is very much possible
-- if sales are $60 million, on a real sustainable basis this
company will be out of money in six months. It's
tremendously leveraged."
Obviously, Corel, which had sales of about $44 million in
the fourth quarter amid hefty losses, has a long way to.
The company was last profitable in the fourth quarter of
1996.
It can't be leveraged anymore,
Stewart says. "This is a stock
that has declined almost between
80 and 90 percent from its
highs," he says. "There is almost
no institutional ownership or little
research of this company, which
makes it unlikely for them to raise
money in the equity markets."
Stewart advises bargain hunters to stay away. "Do I think
that on a risk-adjusted basis it makes a lot of sense to buy
the stock at the current valuation?" he says. "No, I don't."
Things are so bad for Corel that acquistion possibilities
seem remote.
Though many suitors have been rumored -- Oracle, IBM,
and Geac Computer (a Markham, Ontario company in
which Cowpland served on the board) -- have been
mentioned. But analysts can't see why a company would
want to buy Corel.
"IBM owns Lotus: What do they need Corel for?"
Stewart asks.
Vejvoda cautions that Geac [GEACF] and Corel would
not make a good fit. Even Corel's pride, its Corel Draw
graphics program, would be an inadequate lure.
"As far as having the actual software, there's some fairly
fast and sophisticated software engines out there now
doing graphics, so you may be better off starting from
scratch with some of these vanilla engines rather than
inheriting some of the baggage you get with the software
products," Vejvoda says.
Chance for Corel's comeback: Poor
"Do I think that on a risk-adjusted basis it makes
a lot of sense to buy the stock at the current
valuation? No, I don't," -Duncan Stewart, portfolio
manager, Navigator Canadian Technology Fund
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Regards,
Joe... |
