Oakland, California based application development high-flyer Forte Software Inc is in trouble. As warned, disappointing third quarter figures released Thursday has prompted management to announce an emergency ‘action plan’ to try and stave off disaster. The company was forced to report that for the three months ending December 31 its sales slipped from $17.6m in the prior period to $17.3m, with net losses of $6.3m compared to net profits of $2.5m the same period a year ago. The loss figure includes a $630,000 tax charge. For its nine months the company was able to report revenues up, but only by 14%, from $43.5m to $49.5m, but worryingly, with net losses of $11.5m compared to profits of $4.3m a year ago. Two weeks ago the company warned it would report a loss of between $0.25 and $0.32 a share (CI No 3,319), and these figures, released after the markets closed, match the high end of that forecast.
By Gary Flood
President, co-founder and chief executive officer Marty Sprinzen claims the market for large-scale enterprise development tools is experiencing a temporary slowdown, blaming diversion of resources to the Year 2000 problem, a general shortage of qualified programmers, coupled with a gradual shift of programming talent from corporate users to systems integrators, and longer and more complex sales cycles. (At least he didn’t toss in Asian markets for good luck – in fact Forte’s domestic sales fell 9% in the quarter, while international went up 8%.) In response, Forte will spend more resources targeting systems integrators and pre-built application and framework resellers; seize the opportunity represented by the Year 2000 problem, though not by offering a Y2K tool, instead trying to persuade more users to rewrite their apps instead of just fixing them; promote the use of Forte with packaged applications; and revamp operating plans and reduce expenses in light of the current slowdown. But what is clearly still a major issue for Forte is the fact that it seems to have broken its sales force and doesn’t know how to fix it; the company is still blaming the extended sales productivity ramp up for new sales reps, a factor it has been blaming since April of last year, when analysts picked up holes in its fourth quarter results. Forte lost money the first five years of its existence, made net income of $7.2m on sales of $63m, hit a post-IPO valuation of $81 in March of 1996, but now seems to be spinning its wheels in some very deep mud. While there are some positives – Forte has added 28 new accounts during the quarter, and claims almost all projects using its boutique software environment were completed either on time or within two months of project start dates – there must be serious questions in investors’ minds about whether the company has topped out. With the world going crazy for Java, how many corporates really want to continue spending upwards of $75,000 for what is effectively an 2.5m line object 4GL? Even with Gartner Group last July giving it leadership position (CI No 3,206), that may be in a tools market that is fading away to irrelevance. Forte’s share price, which slipped to $6.625 on the warning on January 6th, closed Thursday at $5.375, well down from its 52-week high of $38.25.
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