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Informix on the road to recovery

The database company surprises Wall Street by posting a profit as it succeeds in controlling costs and building on partnerships.

Informix (IFMX) stock today opened 25 higher than yesterday's closing price, after the database maker surprised Wall Street by posting fourth-quarter profits.

The company's stock traded as high as 9-3/16, up from yesterday's close of 7-3/8. Volume was more than eight times the average daily volume by 8:20 a.m. PT. The security was upgraded by at least one analyst, who upped his rating on the company to "buy" from "hold."

Informix's profits were the result of the company's success in controlling costs and building on partnerships with telecommunications hardware, software, and integrated systems providers. Following the release of its earnings report, Informix stock climbed in after-hours trading. The shares jumped nearly a dollar after the market's close, and the stock ended the day at 7-3/8, up 7/32 from yesterday's close. In December, Informix was trading around 4 a share.

The company's fourth-quarter results provide an encouraging cap to a tumultuous year, in which Informix's financial results had to be restated going back several years; shareholder lawsuits came down like rain; its chairman and chief executive, Phillip White, was ousted; its stock was nearly yanked from Nasdaq trading; and the Securities and Exchange Commission launched an investigation into its finances.

Today's upside news revealed that the company generated revenue of $181.2 million during the quarter, down from $216.8 million in revenues reported for the same quarter a year ago.

Net income for the quarter was $9.2 million, or 5 cents a share, compared with a loss of $7 million, or 5 cents a share, a year ago. Analysts had anticipated a loss of 16 cents per share, according to First Call.

Informix's fourth-quarter performance demonstrated sequential growth in all geographic areas, including the Asia-Pacific region, with total revenue increasing by 21 percent. License revenues--generated from deals such as a recent one in which Fidelity Investments signed an agreement for 4,000 licenses to the Informix Dynamic Server for a major call center project in its retail organization--increased by 36 percent quarter-over-quarter.

"Last year was a very difficult year for Informix, but the company demonstrated progress towards the company's goals," Bob Finocchio, the company's chairman and CEO, said in a prepared statement. "We exceeded Street expectations and were able to post a profit in the fourth quarter?. I am pleased that we experienced traction at the top line, controlled our costs, and improved our ongoing financial stability."

James Pickrel, an analyst at Hambrecht & Quist, said the quarter's results show a faster turnaround for Informix than was expected. The real question, however, is can the company continue these positive results going forward?

Pickrel explained that a lot of the company's customers took on a "wait-and-see" approach after it moved aggressively into the universal database area. The company's core products focus on relational databases.

"Was this just pent-up demand?" he asked of the handful of contracts the company signed during the quarter. "That we won't know until the March quarter's results come out."

Informix now is refocusing on core technologies associated with relational databases in an effort to attract new customers and retain existing users. In January, for example, the company rolled out a tool for analyzing data housed in its Dynamic Server database. Dubbed the ROLAP (relational online analytical processing) Option 4.0, the product lets users query data warehouses and data marts either from a standard client application or through a Web browser.

Pickrel said the company's higher revenue over the third quarter, combined with dramatic cost savings, are encouraging signs. Informix's operating costs shrank, and its sales and marketing costs were cut most dramatically--to $69.3 million, down from $121.2 million last year.

Other contributing factors to the quarter's cost savings included a head-count reduction of about 200, which brought the total number of Informix employees to just under 3,500 at the end of the year, down from about 3,700 at the end of the third quarter. The company said, however, that it is now hiring for its research and development efforts and for its marketing department.

During the quarter, Informix completed the sale of property in Santa Clara for $60 million. It also finished a private offering of $50 million of preferred convertible stock to a group of investors led by an affiliate of Credit Suisse First Boston and including affiliates of Castle Creek Partners and Heights Capital Management.

A $75 million revolving credit facility syndication also was completed during the quarter, with the credit line becoming effective as of December 30, 1997. Informix said it has not yet drawn on this facility, as it ended the year with approximately $155.5 million in cash and short-term investments on hand.

The company said it signed significant contracts with telecommunications companies during the fourth quarter, among them BellSouth Advertising and Publishing (BAPCO), GTE Data Services, and Mobile Telecommunication Technologies, all three of which are based in the United States. It also signed deals with Mobile Network Management Center in China, Telecomunicacoes Sao Paulo (TELESP) of Brazil, Chung Hwa Telecom of Taiwan, and Total Access Communications (TAC) of Thailand.

For full-year fiscal 1997 results, Informix reported revenue, after its restatement, of $662.3 million, and a net loss of $358.8 million, or $2.36 per share.