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February 8, 1999

PLATINUM SUSPENDS ACQUISITIONS AND ‘STREAMLINES’

By CBR Staff Writer

By William Fellows

Platinum Technology Inc has had its fill, at least for now. Sliding margins in its services business means the company has suspended any new acquisition activity for at least six months, possibly the entire year. Headcount is likely to be reduced or kept flat. It wouldn’t comment on some analysts’ expectation that 5% of the 4,330 workforce could get pink slips. CEO Flip Filipowski said it was time for the company to streamline by consolidating investments, redeploying resources to its most profitable products and suspend acquisition activity. Certainly Platinum’s share price is not likely to attract possible acquisitions in any case, but moreover I’m sick and tired of being cast as the Rodney Dangerfield of this market, complains Filipowski, keen now to prove his team’s management mettle. (Dangerfield is a stand-up comedian whose catchphrase is I get no respect.) The company’s top line is impressive – revenue of almost $1bn in 1998. Now it must sort out the bottom line that recorded a loss of $2.5m after charges of $78m for 1998. It reported fourth quarter net income of $32.7m up from a loss of $20.3m last time on revenue up 30% at $314.7m. Although operating margins were 18% in the quarter – 10% for the year, compared with 6% in 1997 – Platinum had hoped to beat this number by some distance. It claims it needs to do much more than 15% to sustain growth and says a more streamlined operation should grow margins to this level in 1999. Its share price is down in the low teens, but Filipowski believes the consolidation plan – which it will detail in a couple of weeks – could get it moving to mid-1998 levels of around $34 again. Admitting there were significant problems with margins in the services business Filipowski has installed a new executive team in its services division. The problem was led by a failure to secure synergistic follow-on business from some of its lucrative Y2K services contracts that were one-off engagements. Services were worth $69m in the quarter, up 27% on last year; $254m for the year, up 35%. Services will be contributing to the business by year-end, though it expects the problem will remain significant in the first quarter. The services business will remain sick until after the second quarter, it said. It’s going to keep expenses at the current levels. The industry it operates in is growing at some 20%. Full verticalization of the sales force is on track for next year. Database revenue was $112m in the quarter, up 40%. Systems management was worth $63m, up 35%. Application lifecycle was up 17% at $38m. Datawarehousing was up 28% at $14m. Business integration was up 18% at $12m. International operations contributed 33% in the quarter, 29% for the year. It says it closed 55 $1m-plus deals, including two that approached $30m, compared to 40 last time. 53 of them were product sales. Two of them services-related. It estimates it has a $75m security software business. It is currently in the process of acquiring Memco Software.

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