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January 27, 1998

NETSCAPE Q4 PERFORMS BELOW EVEN ITS EXPECTATIONS

By CBR Staff Writer

Ouch! Beleaguered Netscape Communications Corp managed to do worse in its fourth quarter than even it had predicted just three weeks ago. Yesterday the Mountain View company reported net losses of $88.3m, against profits last time of $8.2m. However, excluding the charges, the company lost $20.8m, or $0.22 per share, when it had predicted between $14m and $18m for the quarter, or $0.15 to $0.19 per share. So that means the actual operating performance of the company was even worse than it had expected. The blame for this performance is laid mainly at the door of competitive pressures; that is Microsoft Corp and its free browser. Netscape has since announced that it will not only give Communicator/Navigator away for free, but from version 5.0 it will put the source code up on its web site to enable developers to tailor their applications to the browser. The charges included $23.0m for the now well-publicized restructuring. The company was not putting any number on the amount of people going, but 400 is the most widely-rumored figure. Revenue for the quarter was up just under 9% at $125.3m, which, although nothing spectacular, at least is within the company’s range. Netscape also blames poor sales on Europe and Asia – usually we get one or other of those as a reason, but not both – and also its retail sales, or lack thereof. Net losses for the year were $115.5m, after the same restructuring charge and $108.9m in charges for purchased in-process research and development, against profits in 1996 of $19.5m, which included $6.1m in merger-related charges. Revenues for the year were up 54% to $533.9m, which is the only real bright spot. Going forward, the company’s chief executive Jim Barksdale says it will be profitable this year as the restructuring, which is now complete, leaves a more streamlined company ready to take on Microsoft more effectively. Barksdale also said at the time of the profit warning that the Department of Justice’s fight with Microsoft over the bundling of Internet Explorer with Windows 95 would help Netscape. Netscape’s core business is its entire business: internet/intranet servers and clients, and if the free client software does not gain it enough corporate wins for its servers, which are acknowledged to be technically sound, then there is very little room left for maneuver. The shares closed down yesterday $0.375 at $16.875 on nervously-light trading.

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