Netscape Communication Corp.'s problems, while disappointing, aren't exactly a surprise, some analysts said. But they stressed that the long-term picture isn't entirely bleak.
As the company makes the transition from a vendor of packaged software to an enterprise computing solutions provider, it must cut spending and adjust sales cycles -- a painful and risky process for any company to undertake, said Rob Enderle, an analyst at Giga Information Group in Santa Clara, Calif.
"While you're in the transition stage, you're vulnerable," Enderle said. "Bad financials tend to make customers back away, which can set off a downward spiral."
With the expected bleak fourth-quarter results, the company might not return to profitability for several more quarters, bringing increased pressure to bear on executives to lower costs, he said.
"And then you have to make decisions on what's not crucial to your business in an environment where things change every six months," said Enderle. Until Netscape returns to the black, he added, "it's going to be a mess."
In the meantime, analysts say Netscape will stop charging for its browser, and that it must hold market share in that area.
"In the long term, Netscape's businesses are highly reliant on the company maintaining a majority of the browser market share," said David Smith, an analyst at Gartner Group Inc.
According to Dataquest, 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 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.
Should Netscape's stock price fall further, some think the company could become a takeover target.
"If it doesn't take off, they become a much more attractive acquisition candidate for someone like an Oracle or an SAP who is interested in the application solutions business," said Chris Selland, an analyst at Boston's Yankee Group. "In the long run, I think either way, they'll be a stronger company" as a result of a definitive exit from the packaged software market, he said.
Material from Reuters was used in this report.