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August 7, 1997updated 03 Sep 2016 4:39pm

INFORMIX DISASTER CONTINUES: $120M LOSS, HAS TO RESTATE 1996

By CBR Staff Writer

We knew they were going to be bad, but this is really bad: Informix Software Inc’s long delayed second quarter results came in Thursday with more red on them than General George Custer’s uniform. The company lost a hefty $120.5m, including a restructuring charge of $62.1m for actions taken in the second quarter, on revenue of $164.7m. That is well up in revenue terms sequentially on the company’s abysmal first quarter, from $133.7m revenue and net losses of $140.1m, to $164.7m, a 23% climb; though the fact remains Informix has now lost $160m for the first half of fiscal 1997. Which brings us to the even worse news: Informix says it has discovered errors in the recording of revenue in 1996, will therefore have to restate its full 1996 figures by anywhere between $70m and $100m (which would result in a fiscal 1996 run rate of only $839m instead of $939m), but that the company and its independent auditors are still trying to work out which transactions need to be restated. For this reason, presumably, Informix has delicately refrained from doing a comparison with the same period last year – which for the record, obviously before the coming restatement, showed revenue of $226.3m and net income of $21.6m; in other words on paper Informix last year sold $61.6m more for the second quarter than it did this time. It doesn’t take Alan Greenspan to realize that the trouble mainly has come from the company’s highly criticized liberal revenue recognition policy, whereby sales to the channel were being booked as solid some considerable time before that software was actually sold on in turn to actual end-users (At a minimum, some of the revenue from those [re-examined] transactions should have been deferred to subsequent periods). This is confirmed by a comment by Bob Finocchio, chairman and chief executive for all of two weeks, that in Q2 revenue recognition has become much more conservative, resulting in recording revenue only for products and services sold directly to end users or through our partners for identified customers. There were no increases in general ‘pool of funds’ revenues from resellers this quarter. That’s not all: the company is having to continue to downsize, with a further 10 to 15% cull, on top of the 9.5% cut in the second quarter (440 staff have already gone, bringing the headcount down to 4,190), which would leave it with a payroll of only 3,562, the majority of losses being in sales and marketing. A further restructuring charge will be made to cover this wave of layoffs. Offices will continue to close and facilities continue to be consolidated, with the company, as expected, not going ahead with plans to build a new campus on the Santa Clara lot it acquired in January for some $60m (it will instead put the land back on the market at once). European and US administrative, finance, technical support and operations endeavors will be centralized, it adds. Finally, the controversial Information Superstores plan, which drew fire for being a major silo of all those sold Informix products, and which was also the brainchild of former executive vice president for worldwide operations Ken Coulter, who quit this week, is to be drastically overhauled, being resized, repositioned and renamed, becoming part of the company’s consulting practice business. Quarter on quarter there was some signs of improvement – North American revenues increased by 14% from $69.1m to $78.9m, European revenues climbed 35% from $36.5m to $49.3m, with rest of world increasing 30% from $28.1m to $36.5m, quarter on quarter. The company claims a number of customer wins, especially on the back of its recently announced deal with application provider Baan Co NV; the company also claims its disastrously hyped Universal Server object-relational database has been shipped to several hundred customers worldwide, though none are actually named. Given the terrible results it is probably not that hard to work out why Phil White stepped down as chairman and chief executive officer, given that his revenue recognition policy is primarily to blame for the mess, why the company also cannot seem to find a chief financial officer who was willing to sign off any of this stuff any more, and maybe also why the SEC is investigating Informix’s UK subsidiary for problems to do with that issue with regard to sales to a Government customer, the Inland Revenue (the UK’s IRS). There is an argument that says Finocchio is wise to take as much of the pain as he can this quarter so that he can get the glory for renewed future growth, but as of right now Informix Software Inc resembles a deflating balloon more than a successful enterprise software player in a rapidly growing market. During the results conference call Finocchio revealed that there are some 40 to 50 transactions that are of particular interest to Informix’s accountants, in Germany, Central Europe, the UK and Japan, which form the bulk of the deals that returned income at least some of which Informix now says should never have been recognized. Given that Informix’s head of Europe Walter Konigseder, VP of Europe, Middle East and Africa, who had been in office for a mere eight months, just quit, and in light of the SEC investigation of Informix UK, one wonders if there is indeed a connection. He also added that Informix has not actually changed its revenue recognition policy, but simply been more conservative in its application of that policy (an interesting difference, one mainly for lawyers and linguistic philosophers). Informix needs to make about $218m a quarter to support itself at its current size, so there’s no shock in hearing that Finocchio believes the previous round of cuts was not sufficiently aggressive in expense reduction. Of the losses, some $29m came from direct personnel or asset write- downs; $16m came from the botched Superstore effort, which he adds should really be called labs anyway; $17m to do with charges related to the aborted Santa Clara land purchase; and $26m worth were other unusual one-off charges.

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