InformationWeek
Defining The Business Value Of Technology
January 12, 1998
Netscape To Post Loss
Layoffs announced, but users stay loyalBy Gregory Dalton with James Governor of InformationWeek U.K.
The company warned last week that it will post an operating loss of $14 million to $18 million for the fourth quarter. Its total loss was much larger after the company took a $52 million write-off for merger-related expenses and a $35 million charge for impending cost-cutting moves, including an unspecified number of layoffs. Revenue dropped to about $130 million in the fourth quarter from $150 million in the third quarter. Product sales to enterprise customers slipped to $91 million from $94 million in the third quarter.
Investors responded to the
news by knocking down Netscape's stock price by about 20%, to around $18 a share. Users, however, have retained their confidence in Netscape and its products. An InformationWeek survey of 100 Netscape customers last week indicates that most consider the company a strategic partner and have at least as much confidence in it as they had three to six months ago (see chart).
"One bad quarter makes no difference to our relationship," says Martin Armitage, the London-based head of global infrastructure services for consumer goods maker Unilever plc, which uses Netscape servers and browsers for its intranet.
"I see this as a speed bump," says Chris Jennewein, VP of technology at Knight Ridder New Media in San Jose, Calif. "If you want a migration path, you've got to go with Netscape," he adds, because its SuiteSpot server scales well.
It's a tall task for a company that isn't even four years old and has only about 3,000 employees before the expected layoffs. Rob Enderle, an analyst at Giga Information Group, says Netscape has "a vision problem" and will have difficulty becoming a serious player in the enterprise, which is only one of its three core businesses. The other two are the Netcenter online service and client software distributed to consumers via stores and Internet service providers.
Netscape CEO Jim Bark
sdale says those three pillars still form a solid foundation and dismisses the idea that the company is adrift. "Nobody saw Netscape coming, and I'm amazed they think they know where we're going," he says.
He won't discuss details of the company's planned cost-cutting, but other executives suggest Netscape will reduce the number of sales and marketing staff members who aren't focused on the enterprise. Meanwhile, to boost enterprise sales, the company is banking on its Actra
E-commerce software and the line of application servers acquired when Netscape bought Kiva Software.
First, however, Netscape needs to protect its declining share of the client software business, which Barksdale calls "the seed corn of our business." He expressed hope that the Justice Department will loosen Microsoft's grip on the PC makers that bundle its Internet Explorer browser. He adds that he will decide by next week whether to make Navigator free.
Standalone sales of the browser accounted for about 17% of sales last qu
arter, but analysts say the company will have to rip off the price tag.
"A free browser could stabilize its market share" and drive sales of back-end systems to large companies, says Bruce Smith, an analyst at Merrill Lynch & Co. He adds that a free browser could also counter the impression of Netscape as "a wounded supplier," which may be deterring some users who want to go with a winner.
etscape Communications is having trouble adapting to the enterprise software market, but it hasn't lost the confidence of its corporate customers.
Growing Pains
But as Netscape tries to move beyond browsers and Web
servers deeper into the enterprise by providing products such as certificate and messaging servers, it's encountering longer sales cycles and demands for more comprehensive service. "The thing they are struggling with is how to be an enterprise computing company," says Ed Glassman, director of technology strategy at pharmaceutical company Pfizer Inc. in New York. "The best technology itself isn't enough to close the sale," he says, and Netscape needs to deliver the service and support provided by other enterprise vendors.
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