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Can Broderbund turn corner?

Wall Street is concerned that the crush of sales from Riven may not be enough to push the multimedia firm toward strong financial footing.

Broderbund Software (BROD), hit in the past with waning revenues and layoffs, surprised Wall Street last December with a stronger-than-expected boost originating from sales of Riven--sequel to the computer game blockbuster Myst.

But since reporting first-quarter profits, the company has run into a few speed bumps. Its president and chief operating officer resigned, and today a new vice president of marketing was named.

Now, analysts are wondering publicly whether Riven alone will be enough to turn the company around, a doubt that has been reflected clearly on Wall Street. Broderbund's stock has fallen from 35-15/16 per share before its earnings announcement in December to 22-1/8 per share Friday--a 38.4 percent plunge.

"We are concerned that Broderbund's financial model did not show the kind of leverage that we believe it could have during the quarter," Mary Meeker, a Morgan Stanley Dean Witter analyst, said in a report.

The company's operating margin fell short of Meeker's estimates, largely because of a higher-than-anticipated jump in administrative and research and development expenses. Broderbund's operating expenses reached $49 million during the quarter, compared with Meeker's estimate of $37 million.

Broderbund posted net income of $10.6 million, or 49 cents a share, for the quarter, up from $8.9 million in the year-ago period. The company's revenues reached $99.2 million, up from $61.5 million a year ago. Wall Street had expected the company to post profits of 44 cents a share, according to First Call.

"We've had some quarters where we've missed estimates, but we're back on track and our sales last quarter set records," said Eric Winkler, a Broderbund spokesman.

Despite those positive results, Broderbund felt change was needed. Last week, the company announced that its president and chief operating officer, Bill McDonagh, had resigned, and that three group vice presidents were promoted to take McDonagh's duties as part of an overall management restructuring.

Broderbund today named Lauren Tanny vice president of marketing. Broderbund officials were not available for comment today, but in a statement the company touted Tanny's "strong financial background." Tanny most recently worked for Krames Communications, a Times Mirror subsidiary, where she managed marketing, product development, market research, sales, and customer services. At Broderbund, Tanny is charged with breaking out the profit and loss of each of the company's six product lines and pushing those products toward profitability.

But Tanny has joined a company whose long-term prospects are questionable, according to analysts.

Meeker, for one, is concerned about the viability of the education and productivity software markets Broderbund is targeting, and as a result is cautious about products currently in the company's pipeline.

"We're not satisfied with our growth in education and think we can do more," Winkler acknowledged. He said that, as Broderbund's competition has grown, its education sales slid from making up 30 percent of revenue to making up only 15 percent. He also noted that, during the last two quarters, the company's education titles failed to make it onto the list of the top ten educational software best-sellers.

Winkler added, however, that the education and productivity markets are growing areas in the software industry. He said that, as a result, Broderbund has gotten more aggressive in its effort to put new products in the pipeline.

Broderbund is expected to announced its second-quarter results in March.