October 31, 2000 6:10 AM PST

Troubled database contender Informix reorganizes

How many times can a company reinvent itself?

That's what investors and observers are wondering as financially troubled Informix launches its latest reorganization plan.

After earnings warnings in the last two quarters and the firing of its chief executive this summer, the Westborough, Mass.-based database software maker has split itself into two companies and is revamping its product family. In the process, about 900 people, or 21 percent of its 4,300 employees, have been laid off.

With the move, Informix's new management team is taking a cue from struggling network equipment companies 3Com, Cabletron Systems and Lucent Technologies, whose strategies are to make themselves smaller via spinoffs so the remaining company can have a narrower focus.

For Informix, the latest restructuring, by new chief executive Peter Gyenes, may be the last chance for a once thriving software company that has steadily lost market share to Oracle, IBM and Microsoft in the growing market for database software that collects and stores corporate information. In the past year, Microsoft has surpassed Informix as the No. 3 database software maker, behind leaders Oracle and IBM, according to research firm IDC.

In a year, Informix has seen its stock drop fivefold to about $4 a share and has cut itself in two to form a database software company and an e-business software company aimed at providing corporations all the software they need to conduct business online.

A separate e-business software company will free up Informix to sell software that runs not only on Informix databases but also on the databases of its rivals, said Peter Fiore, president of Informix's new, unnamed e-business company.

"It's about being more focused. In the last 18 months, Informix has lacked a real clear market identity," Fiore said. "This realignment allows for two operating companies that have very clear strategies.

"We realize there's a question about the past, but we believe what we're doing now is the right thing," he added. "And we realize that now is the time for us to demonstrate results."

Investors and analysts, however, have heard that refrain from Informix executives before--and now have a wait-and-see attitude over the company's prospects.

"We think that the firm has a coherent plan to rebuild the firm," Chase Hambrecht & Quist analyst Jim Pickrel said in a recent report in which he lowered the company's rating from "buy" to "market perform." "However, we will move to the sidelines until we can see evidence of consistent execution and direction."

Analysts say Informix has to prove it can retool its product family and do a good marketing job to sell the products while at the same time getting the company back on sound financial footing.

The company is building a new high-end database and creating versions of its e-commerce software to support database technology from rivals Oracle, IBM and others, said analyst Terilyn Palanca of Giga Information Group.

"It's a lot for them to bite off, but their technology is attractive," Palanca said. "They have to prove they can stabilize their finances and deliver the new technology within a year."

Ups and downs
After years of financial struggles and executive turnover, the company earlier this year appeared to have its finances in order, as it strung together six consecutive quarters of revenue growth.

Former chief executive Bob Finocchio, who took the helm in 1997, was credited with saving a company that suffered from financial turmoil, product marketing misfires, and shareholder lawsuits that accused the company of improperly inflating revenue and earnings.

By May 1999, Finocchio had turned the struggling company back to profitability by revamping the sales organization and the company's product strategy to target the high-end database market as well as e-commerce. He also settled shareholders' lawsuits before turning over the reins to then-chief financial officer Jean-Yves Dexmier.

But a year into Dexmier's tenure as CEO, the company this summer announced an earnings shortfall, as second-quarter revenue fell 4 percent to $240.5 million. Net income was $5 million, or 2 cents per share, far below Wall Street analysts' expectations of 12 cents per share.

The company fired Dexmier and replaced him with board member Peter Gyenes, the company's fourth chief executive in as many years. Gyenes then announced plans to consolidate the company's five businesses and turn them into two separate businesses. Informix in the third quarter announced another earnings shortfall, as the company lost $18.5 million, or 6 cents a share, on revenue of $211.1 million.

Informix executives say the latest reorganization is on track, with each company having separate staffs for sales and marketing, research and development, and consulting services.

The database company, with 2,300 employees, expects to have $780 million to $800 million in revenue for the fiscal year, Fiore said.

Possible spinoff
The e-business software company, which includes e-commerce software, data analysis tools and software that manages Web data and other content, will have 1,100 employees and reach between $120 million to $130 million in revenue this year. Informix hopes to spin off the new e-business software company with a possible initial public offering by the second or third quarter of 2001, Fiore said.

Analysts say Informix is taking chances with the new strategy. The e-business software used to help sell Informix's database to its customers, said analyst Palanca.

"The database will now have to sink or swim on its own, which is dangerous," she said. "They have a good customer base, but they need to expand it.

"There's no guarantee they will do well, but they have a better shot in succeeding now than they've had in a quite some time," Palanca added. "It's more focused, and they certainly have a much more experienced executive team."

 

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