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Netpliance reports sales increase, smaller loss

The maker of the I-opener Internet appliance reports that it increased sales in the second quarter, although it also warned that third-quarter growth could slow.

Netpliance, maker of the I-opener Internet appliance, today reported that it increased sales in the second quarter, although it also warns that third-quarter growth could slow following a massive price increase.

Austin, Texas-based Netpliance lost $40.9 million, or 68 cents per share, on revenue of $2.9 million. Analysts polled by First Call/Thomson Financial had expected a 71 cents per share loss.

In the first quarter, Netpliance lost $41.7 million, 81 cents per share, on revenue of $1.3 million. Both figures assume the conversion of all preferred stock to common shares.

In the second quarter of last year, Netpliance lost $2.9 million and had no revenue.

Netpliance said it had more than 44,000 subscribers at the close of the second quarter, up from 21,000 at the end of the first quarter. Despite the increase, chief executive John McHale said he expects subscriber growth to slow in the third quarter, following the price hike for the I-opener to $399 from $99.

"The third quarter is a transition quarter, as we introduce the I-opener 2001," McHale said in a conference call, noting the company will consume more cash as it builds approximately $20 million worth of inventory at a new warehouse in California. McHale said he expects subscriber growth to be in the range of 40 percent compared with current levels.

As previously reported, Netpliance won't have the new, pricier models on retail shelves until September. People can place orders now for the so-called 2001 membership kit, but direct orders won't ship until October.

The price hike should end the practice of turning I-openers into Linux-based computers using a well-publicized hack.

"The hacker issue is over," McHale said. "Changes have been made to thwart all but the most zealous hackers."

McHale said the company continues to expect strong growth in the fourth quarter but also sees increased competition. In particular, he referred to Web devices from Emachines and Compaq Compute tied to Microsoft's MSN Internet service.

"They're going to be priced higher with rebates based on (service commitments)," McHale said. But he didn't rule out the possibility that Netpliance will cut prices to spur sales.

"It's always easier to lower prices than to raise (them)," he said.

Chief financial officer Barbara Kaczynski said Netpliance believes that, based on current business plans, it has sufficient cash to last "at least through the next 12 months."

Earlier this week, Netpliance named former AT&T Wireless executive Valerie Walden as chief operating officer.