Corel chief executive Michael Cowpland came out fighting last week,g its hopes on Java. Graham Lea reports. with a detailed presentation of his recovery strategy in the wake of financial losses.
At the start of the year, Corel announced a loss of $232 million on revenue of $261 million for Q4, following a profit warning and restatement of results to reflect changes in accounting practices. The first quarter also yielded a loss of $21 million and $45 million sales, but this appeared to be a hangover rather than the result of new problems.
But confidence in the Canadian software house has been dented. Cowpland's view is that the losses were the result of various actions that, long term, have made Corel stronger. The reasons given for the losses include capital write-downs, due to Wordperfect (WP) acquisition costs; the divesting of 50 non-core products, and inventory reduction to follow a just-in-time model, which will allow price changes to be made dynamically.
Although the results were aggravated by slower than expected turnaround, Cowpland says these actions have resulted in a well-positioned and financially strong Corel, with $19 million cash at the end of February, zero bank debt, and a reduced long-term debt of $23 million. There was also a $5 million buy-back of shares during the 1997 financial year.
Corel has about 900 developers - two-thirds of its staff are in R&D - split between Ottawa, Canada headquarters, WP's original base in Orem, Utah and Dublin, Ireland. It now focuses on three main areas - office suites, graphics and Java.
The basis of much of the first business, WP and Paradox, were acquired at sale prices from Novell and Borland, and Corel claims there is a massive opportunity despite the success of MS Office. In 1997, Microsoft sold about 17 million new and 13 million upgraded copies of Office. Cowpland says Corel sold six million copies of the WP suite in the same year and has 30 per cent of the overall US retail market.
Corel is targeting a possible market of 70 million PCs a year that ship without MS Office. The imminent incorporation of Dragon speech recognition into WP could also help sales.
The initial confrontation with Microsoft has evolved into a model of coexistence, with Corel pitching itself as a compatibility leader, releasing products that transfer files to and from Microsoft products. Its largest markets are US lawyers, US government and the health sector.
The 16-bit market has dried up sooner than Corel expected, but the large existing base of 16-bit WP users has proved slow to move to 32-bit versions.
In product comparisons, WP won more honours, but Corel remains behind Microsoft in its ability to persuade OEMs to preload its suite on PCs, and corporates to adopt WP.
WP and Ventura have both had a complex ownership history, and were failing for want of good marketing when they were acquired by Corel. Corel has not found it easy to sell WP because of Microsoft's success with bundling, but with its recent price reductions in a cost sensitive new PC market, it is beginning to achieve breakthroughs.
Corel's non-confrontational coexistence and compatibility policy with Microsoft seems wise. It remains to be seen whether Cowpland's assessment of the future market is sound. Corel still has much work to do to overcome its financial problems, and this does not impart confidence to OEM and corporate customers.
Corel's position in graphics, its second key market, results from being one of the first developers of Windows applications at a time when the Windows market resembled the Java market today.
John Warnock, Adobe CEO, denied reports that Adobe was preparing an attack on CorelDraw with a cut-down version of its Illustrator software - though this would be a powerful threat if launched.
Following the experience of an early Windows product, it was not surprising to see Corel first on the scene with a real Java application - Office for Java - which won Java World's Best Java Application accolade. But development stalled and the product did not deliver the desired speed, so Corel shifted gears when Java Beans components became available, and went ahead with a second generation development toolset.
It saw an opportunity to be the first to incorporate Java Beans into applications and has produced a rapid application development (Rad) environment for the Web, with Website creation and management tools. OpenJ is a platform that will combine Java, XML (extensible markup language) and HTML, and is intended to allow people with no Java experience to create their own applications by gluing together Java Beans.
OpenJ allows dynamic application assembly and small Java applications, reducing download time from a server to a network computer. OpenJ is available for preview on Corel's Website, and runs with Corel's Website Builder.
JBridge is a Java-based Windows-to-Java bridging technology that will allow the deployment of any 32-bit Windows application from a Windows NT server to a client with a Java Virtual Machine. It will be included with WP Suite 8. Both are scheduled for commercial release in the third quarter.
Corel has been criticised for going after the NC and Java market - which may provide it with longer term benefits - when it needs short-term revenue.
The company's own NC development is undertaken by a separate company, Corel Computer, and 1,000 pre-production NCs - at about $500 each - will be released to early adopters and potential partners.
There are also plans for a higher specification NC called Netwinder.
The cost of the NC development for Corel is about $1.5 million per quarter.
Corel is expecting income from the NC within a few months, but Cowpland says Corel has not counted on Java and NC products for immediate revenue, and whatever it does make on them, will be additional to the business plan.
Corel's path is fraught with danger, and new technologies are regarded as a risk until successful. It is too soon to say whether the Java developments will be successful, or or even whether the revenue from its office suite and graphics products will prove sufficient.
However, it does have an asset in the experience gained developing advanced Java products. This could result in the company being an attractive acquisition for a company like IBM. Adobe has also been mentioned as a potential suitor.
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