Be falls on hard times

On Tuesday, the operating system maker slashed 27 jobs and watched its stock plunge 33 percent to close at 81 cents. The layoffs could amount to as much as 25 percent of Be's work force, although the company wouldn't specify.

Most of the cuts were in sales and marketing but also hit the company's engineering staff. Be also will close its European office in Paris and consolidate its European marketing efforts with its U.S. operations.

Analysts say the news could mean that Be is fighting for its life.

"If Be laid off 27 people, that's a big chunk," Gartner analyst Chris LeTocq said Tuesday. "That says they kept a couple business development guys to sell to (manufacturers) and they're going to the mattresses."

Menlo Park, Calif.-based Be is one of the latest causalities in the high-tech shakeout that has sent tens of thousands of technology workers packing this year. In the first three days of April, at least a half-dozen companies cut workers, citing hard times.

The challenge for Be now is weathering the disastrous computer sales slowdown that also hit the company's core market focus: Internet appliances. Unlike PCs, Internet appliances are simpler devices that are used strictly for Internet access or information retrieval.

Be has been licensing a derivative of its Be Operating System (BeOS), known as BeIA, for use in Internet appliances. But a sagging market has contributed to limited customer wins and sales.

Market researcher IDC, for example, had projected manufacturers would ship 220,000 Web-surfing appliances last year.

"But the actuals are coming in short of expectations," IDC analyst Bryan Ma said. In fact, only about 160,000 of the devices shipped in 2000. Ma couldn't offer predictions for this year because they aren't final yet, but he warned that the numbers could be lower than previously expected.

A better place to Be?
"Basically, the appliance marketplace has suffered along with the rest of the PC marketplace," LeTocq said.

Lamar Potts, Be's vice president of sales and marketing, acknowledged that Internet appliances' inability to live up to the hype has hurt the company.

"Over the last 12 months, with all the hype around the Internet appliance industry, we were structuring and building a sales and marketing organization to meet what we thought was going to be great demand in this space," he said.

In reality, that demand didn't pan out. "It's going to happen more slowly than analysts predicted," Potts sad. "We're restructuring the business to face the realities of the marketplace."

Potts would not say exactly how many employees remain at the 11-year-old company, but he put the figure "north of 75."

In addition to other effects, the layoffs could hurt Be's visibility. Some of the positions cut will curtail plans for greater outreach to the media and at trade shows.

The failure of Internet appliances to take off has as much to do with hype as it does with the slowing computer sales. The products also failed to find a niche.

"There are certainly consumer confusion issues and price comparison issues with the PC," Ma said. "It really comes to the Internet appliance's value proposition, and it really hasn't been enough to draw in consumers."

Being Be
Other casualties have been mounting. 3Com last month pulled the plug on its much-hyped Audrey Internet appliance. Likewise, Gateway is rethinking its commitment to Internet appliances.

This week, Sony delayed by a month the launch of its eVilla Internet appliance, which runs BeIA.

"It really does directly hurt Be," Ma said. "That was one of the really big design wins. At the same time, Sony is pushing it back only a month, so it's only a big deal in that they have nothing shipping yet."

Still, Be's troubles don?t mean it is without other customers capable of sustaining the company as the Internet appliance market shakes out.

Architecturally, BeOS is considered by many to be one of the best operating systems ever created, particularly for people developing or delivering multimedia content. But the scarce availability of applications hurt BeOS sales, so the company took the operating system's best attributes for use in Internet appliances.

Many other BeIA licensees are interested in the operating system's multimedia capabilities. Electronics manufacturer Teac's Tascam division uses BeIA in an audio device, Potts said. The software also is used for sampling CDs at select Tower Record stores, he added.

Ma said Be's bigger problem may simply be being in the wrong market. "It is really going to be tight given limited design wins and a market there is a lot of skepticism of," he said.

LeTocq said the company has to do more than "keep their heads down and hope they hang in there until the market goes north again. Otherwise, I figure they got a year of doing that before they're gone."