May 23, 2000 1:55 PM PDT

Can Inprise perform as a soloist?

Now that it has called off its marriage with Corel, some analysts are questioning whether Inprise can survive on its own.

Software maker Corel and software development toolmaker Inprise ended a planned billion-dollar merger last week, throwing into question the future of both struggling firms.


Gartner analyst Mark Driver says the termination of the proposed merger between Corel and Inprise/Borland leaves the companies free to pursue more appropriate financial and partnership opportunities.

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Inprise "can't survive as an independent business," said John Rymer, president of Upstream Consulting. "They need to find another home. Unfortunately, they may be viewed as damaged goods at this point."

Despite such pessimism from some analysts and continuing financial woes, Inprise interim chief executive Dale Fuller remains confident in the company's direction.

"When I took over, it was voted one of the top three companies most likely to not see the millennium. We've done a lot to prove people wrong," he said. "A turnaround usually takes two or three years. The last year's been hard; we have another hard year ahead of us, but we're turning the company around."

Corel and Inprise announced plans to merge in February to tackle the burgeoning Linux market together and better compete against their biggest rival--Microsoft. Corel, best known for its WordPerfect word processing software, is building a desktop version of Linux, while Inprise is building tools that will allow software developers to build software that uses Linux.

Under the original deal, Inprise would have become a subsidiary of Corel in an all-stock transaction worth $1 billion. But in the last few months, Corel's financial situation worsened and its stock plummeted, prompting Inprise executives and shareholders to question the merits of the deal.

Dale Fuller Fuller, a former Apple and WhoWhere executive, said he won't actively seek another acquisition or merger, but if the right offer comes along, he'd consider it.

"We've been solo and not seeking to merge, but we found the (Corel merger) a good opportunity. We're saddened the deal didn't happen, but they weren't executing," Fuller said, referring to Corel's financial situation. "We are open to any opportunities to increase shareholder value."

Some analysts, however, believe Inprise needs to find another buyer. The company, one of the few remaining independent software development tools companies, is trying to move from the less profitable development tools and branch out to the more lucrative e-commerce software market. But the competitors in this market are no slouches: IBM, Oracle, Microsoft and the Sun-Netscape Alliance.

Inprise has struggled in the past several years as the software development tools market has consolidated and profits have decreased. Bigger firms, such as Microsoft, Sun Microsystems and IBM view tools as an important piece of their strategy, but not necessarily a big money maker.

The software firms sink millions in tool research, development and marketing but sell them at cut-rate prices--or even give them away--to seed the market for more profitable technologies, such as operating systems, database software and high-powered computers.

To combat the lower profits in tools, Inprise has increased its product mix to include application servers, making software that helps run transactions on e-commerce Web sites. The company is also going after integration servers, which help businesses connect their employees, partners and customers together on Web sites.

But the shift has not translated to higher revenue--or profits for the company. Revenue fell 7 percent during the 1999 fiscal year, from $189.1 million in 1998 to $174.8 million in 1999.

In April, the company reported a first-quarter loss of $1.1 million, or 2 cents a share, compared to a net loss of $25.6 million, or 54 cents a share, during the same time last year. First-quarter revenue increased slightly, from $43.4 million to $46.5 million.

Inprise, which sold a 10 percent stake to Microsoft last summer, has seen its cash reserves quadruple in the past year, from $62.3 million to $239.7 million. During that time, its stock has risen from $3.81 to $17.31, only to nosedive again to the current price of about $5.50.

With revenue beginning to grow again, Fuller said he expects a profit by the third quarter. The company is optimistic that several initiatives--new software tools for Linux developers and application service providers--will soon pay dividends.

"A lot of people have counted us out, which is OK, because we're making good headway," Fuller said.

International Data Corp. analyst Sally Cusack said Inprise is on the right track with Fuller at the helm, but that alone may not be enough. "He's savvy and has business smarts, but I don't know if he (has) time to salvage the company," she said. "Should they rally the troops to do one last stand or look for another partner for a merger or acquisition? It will probably be the latter."

 

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