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Corel paints rosier future

The software maker lays out a back-to-basics plan that its executives assert will return the struggling company to profitability by September.

Corel has laid out a back-to-basics plan that its executives assert will return the struggling software maker to profitability by September at the latest.

Chief Executive Derek Burney outlined Corel's corporate strategy at a press conference Tuesday in Ottawa, Canada.

Burney said Corel plans to refocus on its core businesses--namely, the WordPerfect Office desktop suite, the CorelDraw drawing program, and other future "creative" products, especially for the Apple Macintosh market.

"We're not going to go into a head-to-head battle with Microsoft Office," Burney said. "We are changing the rules of the game."

To Corel, this means trying to convince its existing WordPerfect Office customers to upgrade, Burney said, rather than to convert new customers from Microsoft Office.

The Microsoft Office desktop suite has more than 90 percent of the market share among Windows customers, according to market researchers.

Burney ackowledged that many of Corel's WordPerfect Office customers have not upgraded over the past four years. By offering WordPerfect Office 2002, which is due to ship before the end of 2001, and by incorporating Microsoft's core .Net framework technologies into future WordPerfect Office versions, Corel "will give them a reason" to upgrade, Burney said.

Corel also is planning to cut the number of WordPerfect Office packages it offers from 30 to four, Burney said. It will do this by eliminating international language versions of the product and focusing exclusively on English, except for one French Canadian version developed for the Canadian government.

Corel also plans to sell off its Linux operating system business, Burney said, though it will retain an interest of an unspecified amount in that business.

"To realize this vision and boost the value of our existing Linux equity for shareholders and customers, we are pursuing opportunities that would allow us to spin off the Linux distribution element of our Linux division, with the intention of retaining an interest in the prospective company," Burney said in a letter to shareholders.

Corel is close to finishing a deal with Linux Global Partners, a New York holding company that is expected to buy 80 percent of Corel's Linux business for $5 million and allow Corel to hold the remaining 20 percent, according to sources. Details of that deal are not expected to be announced for another month or so, sources said.

Corel sells a version of the Debian Linux distribution, which the company calls Corel Linux and which is aimed at desktop computer owners.

In addition to counting on WordPerfect Office to fuel growth, Corel is betting heavily on its so-called creative product family to boost revenues. Burney is predicting 30 percent growth, compounded annually over the next three years, for such products. He predicted Corel's creative product revenues will double by 2003.

Burney also committed to developing its CorelDraw, Painter, Bryce, KPT and KnockOut masking software for both Mac OS 9 and OS X. He added that Corel is "researching new vertical markets" for its CorelDraw graphics program, but did not offer further specifics.

"We have expanded our commitment to the Mac," Burney said.

Burney has his work cut out for him, analysts have said.

Corel lost $10.7 million, or 15 cents per share, on sales of $36.4 million in the third quarter. The company is scheduled to report fourth-quarter results this week.

Last year, after the exit of CEO Michael Cowpland, Corel cut 320 jobs as part of its effort to return to profitability. In October, the company received a $135 million investment from Microsoft in exchange for Corel's agreement to back the Microsoft .Net software-as-a-service initiative. As part of the terms of that investment, Microsoft dropped pending patent violation legal action against Corel.