Corel sinks deeper in the red

Michael Cowpland's history of jumping on the latest tech bandwagon -- this time with Linux -- appears to be fizzling again.
Written by Larry Dignan, Contributor on

Corel has seen a fourth quarter loss of 14 cents a share. Wall Street was expecting a profit of 12 cents a share.

The loss was the second red flag for investors in recent weeks. Corel's chief financial officer, Michael O'Reilly, resigned Dec. 15.

Corel in recent quarters has delivered upside surprises, but has a long history of disappointing Wall Street. Duncan Stewart, fund manager at Tera Capital, told Reuters recently that Corel's history and profit taking led to Corel's recent pullback.

"This is a company which has a long and checkered history and, yeah, hopefully this time it's going to be different," Stewart said.

In the latest earnings miss, Corel said it expects to report revenue of $61 million (£37.9 million), down from $67.2 million in the fourth quarter a year ago. For 1999, Corel expects to report a profit of a nickel a share. First Call was expecting a profit of 24 cents a share.

"While we are disappointed by the preliminary results, we are pleased that we are still able to deliver a profitable year," said Michael Cowpland, Corel CEO, in a press release. "We are confident that our leadership in the exciting, fast-growth Linux market and new Web-based initiatives will put us in good standing for the year ahead."

In a Reuters story Dec. 14, Cowpland had this to say:

"There'll be some significant Linux sales," Cowpland said, adding that results for the quarter, which are expected to be reported January 18, are "on track". "We can't actually go into numbers because we're in a quiet period. But the initial enthusiasm is really strong."

Cowpland's bullishness echoed what he said on Corel's first quarter conference call when he added that the company's turnaround was complete.

Taken by surprise On Wednesday, Corel said it was surprised by the shortfall after strong sales of $77 million into the channel. O'Reilly said the company had to take substantial reserves on "a number of products," which cut revenue. Translation: Corel stuffed the channel and didn't get the sell-through. The financial chief also said the company had higher expenses.

The latest profit warning is bad news to investors that bought into Corel at the peak of its Linux hype. On November 12, Corel closed just under $9 a share. Less than a month later, Corel closed above $39.

Corel, which does have some key Linux products, was riding the wave of Linux hype that drove Red Hat, VA Linux and others into the stratosphere. Corel recently launched versions of Linux and its WordPerfect Family Pack.

Corel also said Wednesday that it would acquire a one-third stake of LinuxForce, a Philadelphia-based Linux support company. Corel said it has a three-year option to increase the ownership position to two-thirds.

A little history, however, can go a long way. Corel has tried to build businesses about whatever technology was popular at the time. Recent incarnations of Corel had it trying to capitalise on Java and handheld computing.

For his part, Cowpland did little to curb the Linux hype and will have to eat some of his words.

"Virtually every company is underway with Linux development, with the exception of one," said Cowpland, recently in a Reuters interview, referring to rival Microsoft. "That's the benefit of being the early mover...We don't have to call people. They call us."

Cowpland wasn't finished with his big talk. "We certainly have some good upside potential," he said. "People are looking at a 10-year scenario here and -- as they often do in Web plays too -- they're not impatient for really early profits."

Corel better hope investors are really patient.

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