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Roxio shakes off profit worries

The software maker reports lower profits but expects the current confusion over recordable DVD standards to boost interest in its DVD products.

Software maker Roxio reported higher sales but smaller profits Wednesday for its fourth quarter and the 2002 fiscal year, its first report as a separate entity after spinning off from PC hardware maker Adaptec last May.

Roxio, which specializes in software for recording CDs, reported a net income of $300,000, or 2 cents a share, compared with $1.9 million, or 12 cents a share, for the Adaptec business unit that became Roxio during the same period a year ago. For the year, income was $2.3 million, or 14 cents a share, compared with $3.6 million, or 22 cents a share, in 2001.

Revenue for the quarter was $38.9 million, up from $36.3 million a year ago. For the year, revenue came in at $142.5 million, up 17 percent from the $121.2 million reported the previous year.

Excluding one-time charges, Roxio earned 21 cents a share for the quarter and 96 cents for the year. Analysts polled by First Call had predicted earnings of 17 cents and 91 cents, respectively.

Roxio CEO Chris Gorog said lower profits for the year were the result of a $10 million advertising campaign to promote the company, whose primary products are the Easy CD Creator and Toast consumer applications for CD recording.

"A year ago, Roxio was a brand-new company...so it was important to get our name out there," he said in an interview. "We think it's really paid off in terms of enhancing our retail sales...and connecting the brand to digital media and the CD-recording space."

Gorog said support for CD-recording functions in new PC operating systems has not hurt Roxio. Microsoft includes a basic CD-recording application licensed from Roxio in Windows XP, while Apple Computer has its own CD-burning program in OS X.

Gorog said both operating systems have helped drive upgrades to more capable Roxio programs.

"Within the OS, I think the software maker wants to provide some basic level of functionality," he said. "What that does is really seed the market for us and whet the appetite for consumers to do a lot more with digital media."

Roxio has expanded with the acquisition of MGI Software, whose PhotoSuite photo editing program is bundled with many digital cameras. MGI also makes a popular video editing application. The combination, Gorog said, gives Roxio a wedge into a market that will play an increasingly important role in the way consumers use recordable CD and DVD discs.

"What we're really trying to do is look at what the consumer wants to do with digital media," he said.

Gorog added that he expects the current confusion over recordable DVD standards to boost interest in Roxio's DVD products.

"The complexities around DVD recording I think create an opportunity for us," he said. "We're focused on delivering products that make the complexities of the different formats invisible to the consumer."