Corel Corp reported first-quarter results in line with its earlier warning, showing a net loss of $14.6m, or $0.24 per share, compared to a loss of $21.1m in the year-ago quarter. Revenue dipped 11.3% to $40.3m as sales of the company’s two flagship products, WordPerfect and CorelDraw, eroded at the concurrent end of their life cycles. Corel had said in January that it expected the seasonally light first quarter to be hit significantly by the fact that neither product had seen an upgrade in five quarters but before last week’s warning analysts had still been looking for positive earnings of $0.03. The company also took the occasion of the quarterly report to announce a deal with Dutch giant Philips Electronics NV that will see that company’s new speech recognition product included in certain international versions of WordPerfect.
The main downward thrust was on the graphics side of the business and was mostly restricted to the retail sales channel. Overall retail sales plummeted from $45.3m to just $17.2m as customers awaited new releases and barely edged out corporate license revenue of $17.0m. Typically retail sales are two- to three- times corporate licenses. OEM sales were $6.1m and have more or less held steady over the past four quarters. However, with Compaq Computer Corp, Gateway Inc and Lexmark Inc now on board and talks with other vendors ongoing, that segment is expected to pick up steadily in the coming quarters. Sales of graphics products fell to $15.1m from $39.2m in the preceding quarter and $27.4m in the year-ago period. They represented 38% of overall sales, down from 59% in the fourth quarter and 60% a year ago. Revenue from productivity applications, meanwhile, slipped to $24.9m from $27.5m in the fourth quarter and rose from $18m in the year-ago period.
On a conference call with analysts, Corel executives said that while the quarter was disappointing, the company is still optimistic about the rest of the year. Chief executive Michael Cowpland asserted that the setback is an isolated incident and is now behind us. Things could have been worse, but for the fact that overall costs for the quarter declined 22% from a year ago, which Corel said is a clear indication of the success of its restructuring initiatives over the past 12 months. New releases of both of the products in question – CorelDraw 9 and WordPerfect Office 2000 – are slated for mid-April and are expected to provide a revenue surge for the second half of the current quarter. The company reiterated that it expects a second-quarter profit, but would offer no specific guidance on revenues or earnings. Analysts surveyed by First Call are looking for earnings of $0.06 per share for each of the next two quarters.
