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Corel pedals through product cycle lows

But will Q2 be any better?

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Corel confirmed a bad first quarter yesterday. Revenue was $40.3 million, down from $45.5 million in the year-ago quarter. The loss of $14.6 million compares with $21.1 million a year ago. Corel has however managed to reduce its costs by 22 percent. The head count is 1,515. Corel finds itself in a product cycle low, with new versions of CorelDRAW and WordPerfect Office 2000 scheduled for the end of the current financial quarter, ending 31 May. That suggests the results for Q2 are likely to be bad as well, although there may be some relief as a result of upgrade coupons for the new product versions with the current versions. In the conference call after the results were released, it was said that Corel's sales revenue splits into 60 percent retail, 30 percent licences, and 10 percent OEM. The last quarter saw a significant decline in retail sales as a result. Corel has deferred revenue of $19.5 million compared with $12 million a year earlier. Corel has just enough cash to make it through one more bad quarter, it would appear ($14 million) without any need for borrowing. Corel has slightly improved the market share of its DRAW product, but the graphics market as a whole was down in the quarter. Corporate and OEM sales have marginally increased. Four language versions of WP will be released this quarter(English,French, German and Dutch). The Linux version of WP has been downloaded 900,000 times, according to Michael Cowpland. He added: "The only people who tend to buy Microsoft [Office] are those who don't look at our product." He also noted that Microsoft had put its "monopoly prices" up substantially, restricting personal use and concurrent use, with the result that some Microsoft Office product prices had gone up 220 percent. Corel is bundling WP significantly with Gateway, with new bundling deals in the quarter with Lexmark and CyberDyne. The anticipated US upgrade street prices of WP2000 are: standard version, $99; with speech recognition, $149; and the professional version, $199. These are around 30 percent higher than current prices. Corel shares were languishing on Nasdaq at $2.25 yesterday. It is hard to identify any more bad news and unfortunate product timing, so perhaps the future for Corel will be brighter, and cheer up the disgruntled shareholders. Corel did not put on its usual press conference at CeBIT this year, maybe because the general objective of such events is to spread good news. However, Corel did demonstrate WordPerfect 2000 at CeBIT, with Philips FreeSpeech product for speech recognition rather than Dragon. Philips is stronger in the European market, and offers 16 languages at present, which will increase to 32 and eventually include Chinese and Japanese. However, Dragon-enabled WordPerfect will continue to be available in the North American market. ®

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