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Netscape beats estimates

Netscape Communications posts improved third-quarter results bolstered by the recent transition of its product cycle.

Netscape Communications (NSCP) slightly beat analysts' estimates for an improved third quarter today, bolstered by sales of its core Netscape Communicator and SuiteSpot 3.0 products.

Netscape posted net profits of $11.7 million, or 13 cents a share, for the quarter ending September 30, compared with $7.7 million, or 9 cents a share, a year earlier.

Analysts expected earnings of 12 Netscape at a glance cents a share for the quarter, according to First Call. The range of analysts' estimates was fairly narrow, from 10 to 13 cents.

The financials of Netscape are likely to gain attention in the coming months, as analysts and stockholders watch closely to see what, if any, fallout there will be from the Justice Department's investigation into Microsoft's business practices, particularly its decision to bundle its competing browser, Internet Explorer, with the latest version of its operating system.

Netscape's revenues climbed 50 percent to $150.1 million for the quarter, up from year-ago figures. The company's revenues have been growing steadily each quarter, while profits have been largely flat sequentially for the past several quarters.

Netscape's stock, meanwhile, has fallen far from its 52-week high of 65 in mid-December to bounce around in the middle 30s to low 40s in the past few months. Share prices, however, got a 12 percent boost yesterday when the stock closed at 39-1/4, up 4-5/16. And today Netscape ended the day at 39-13/16, up 9/16.

Looking into the fourth quarter, Netscape executives said they are comfortable with analysts' estimates of revenue growth in excess of 10 percent over the previous quarter. Analysts have a fourth-quarter revenue range between the high $160 million to low $150 million range.

And operating margins are anticipated to improve.

"We are budgeting for some improvement in operating margins, although improvements in operating margins will be driven by revenue growth," Netscape chief financial officer Peter Currie said in a conference call.

He noted that Netscape has shown it can control expenses over the past few quarters. Iin the most recent quarter, the company's general and administrative expenses were flat and its research and development costs were down over the previous year.

"The point is that I think we understand how to control expenses, but we're never going to save our way into prosperity," Currie said.

Analysts were largely satisfied with the current quarter's results.

"Their operating expenses were lower than what most people were expecting and they have done a good job at expense control," said Kris Tuttle, an analyst with SoundView Financial Group.

Michael Parekh, an analyst with Goldman Sachs, said Netscape's results show that the company has made some progress on moving its new product releases.

"It looked like a solid quarter. The issue for a lot of investors is that they had just started to show results from their product releases in June," Parekh said. "They got them out the door and now we're seeing them get some traction."

He added that although the company's sequential revenue growth has been slightly north of the 10 percent range for several quarters, largely due to Netscape falling into a product transition cycle. Parekh said it is possible the growth rate may increase to the 20 percent range over time.

"I think they [will be] able to execute better revenue momentum sometime next year," he said.

Analyst Mary Meeker at Morgan Stanley has a "strong buy" on the company and estimated Netscape will post revenues of $146 million, which would be up 46 percent from year-ago figures and 8 percent over the previous quarter.

"Look for positive sales momentum after several quarters of product transitions," Meeker stated in a report.

The company and investors should pay careful attention to longer sales cycles and product installations becoming more complex, she noted.

Last month, Netscape discussed its focus going forward in a briefing with

Netscape CFO Peter Currie on the company's financial outlook
analysts and press. The company plans to capture more business in the intranet, Internet, and extranet arenas. Extranets tie businesses to their outside customers via electronic transactions and other methods.

Other significant events for the quarter include the release of the Navigator 4.0 browser unbundled from the Communicator software suite. Netscape announced in August that it was offering a standalone version of its latest browser, as some of its customers, such as Lotus Development, pressured the company to unbundle the software. The company asserted the move to offer a standalone version had always been planned.