April 12, 1999
High Technology
Y2K proves to be no big
payday for Peritus
Software
Rex Crum
In one succinct line, Ron Garabedian, director
of finance at Billerica-based Peritus Software
Services Inc. summed up the state of affairs at
the provider of software maintenance and
outsourcing services.
"Thus far, it's been a rough year," Garabedian
said.
And it looks as if things are about to get
rougher following the resignation of chief
executive officer and president, Dominic
Chan.
Chan announced he would resign from the
company and leave its board of directors.
Chief financial officer John Giordano will
take over Chan's former positions for the time
being.
According to Garabedian, Chan left Peritus in
order to avoid a conflict with the board of
directors. Chan is apparently interested in
buying the company's information-technology
section.
"He decided he was interested in pieces of the
business. He didn't want to be in conflict with
the board and decided that it might make sense
to go about it from the outside," Garabedian
said.
While about 40 Peritus employees got pink
slips at the end of March, it is Chan's
departure late last week that may be a
harbinger of more bad times at the Billerica
software firm.
Garabedian said the company is hopeful that
streamlining its operations will start turning
things around, but that anything could happen
now. "It is a possibility the company will be
broken up," Garabedian said.
So what is at the root of Peritus' problems?
It's that great, three-figured catch-phrase for
all that is supposed to be evil come next New
Year's Day: Y2K.
"We anticipated more (Y2K) business, but, as
such, that's been curtailed," Garabedian said.
When asked if Peritus' Y2K business was
drying up, Garabedian said "that's a fair
assessment."
Matthew Nordan, a computing analyst with
Cambridge-based Forrester Research Inc., said
Peritus basically made the mistake of putting
too many eggs in its Y2K basket. Regarding
Peritus' slide, Nordan said it "doesn't surprise
me at all."
According to Nordan, who said he was briefed
by Peritus last summer, the company took a
two-pronged approach to Y2K work.
First, Peritus tried to undercut pricing for
Y2K work by charging only 25 cents to 45
cents per line of computer code that was fixed
and made Y2K compliant. Nordan said at the
time he was briefed, the going rate for code
fixing was about $1 a line, and now it's
between 80 cents to 90 cents a line.
Peritus' second move was what is called
amortizing payments. By this, the company
spread out the payments for its Y2K work
over three to five years. Payments for work
done in 1999, for example, would be extended
to 2002.
"They looked at Y2K and said it would be
huge," Nordan said. "But the problem is
everyone jumped in and the pool dried up."
What also happened, Nordan said, was that
Peritus didn't count on things like name
recognition playing a role in determining who
a company would chose for its Y2K work.
"It's commodity work. When you fix errors,
it's not like one company's version is better
than another. So if you have someone like an
IBM coming in with the same low price,
they're going to get some of that business,"
Nordan said.
The recent round of layoffs includes most of
the company's sales and marketing staff.
Garabedian said those employees were a cost
the company "could no longer afford." A
Peritus statement said the company would
take a $250,000 restructuring charge for the
job cuts.
Garabedian said those layoffs leave Peritus
with about 80 employees. The company also
fired 45 workers last December and took a
$1.2 million charge for the fourth quarter of
1998. For that quarter, Peritus reported losing
$5.3 million, or 33 cents a share, on revenue
of $5.7 million.
But even that was an improvement over the
same period in 1997, when the company lost
$68 million, or $4.93 a share, on revenue of
$14.2 million.
On March 29, just before the latest firings,
Peritus announced it expected to lose between
$2 million and $2.5 million for its first
quarter of 1999.
A company statement said the loss was related
to a "significant license transaction" that
Peritus expected to close during the quarter,
but had instead been put off indefinitely.
"We had a slightly more optimistic forecast,"
Garabedian said. "But a large customer we
had been pursuing went elsewhere."
Garabedian said he could not reveal the names
of any clients Peritus was dealing with now.
Then, on Feb. 3, Peritus announced its stock
would be de-listed from the Nasdaq stock
market for failing to meet certain criteria,
meaning, the company's stock price couldn't
justify it remaining on Nasdaq.
On that day, Peritus' stock closed at 84 cents a
share.
Since then, the Peritus' stock has traded on the
over the counter bulletin board, but has
continued to plummet, trading this week at
around 25 cents a share. The stock's 52-week
high was $7.50 on July 20, 1998, and its low
was 13 cents on March 30.
REX CRUM, high-technology reporter for the
Boston Business Journal, can be reached by
e-mail at RCrum@amcity.com. |
