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Netscape posts increased profits

Exiting a long product-transition tunnel, the browser maker posts improved second-quarter profits--excluding one-time acquisition and restructuring charges.

Pulling out of a long product-transition tunnel, Netscape (NSCP) today posted increased second-quarter profits, excluding one-time acquisition charges.

Netscape reported a quarterly loss of $43.8 million, or 49 cents a share, for the period ending June 30, compared with profits of $5.8 million, or 7 cents a share, a year earlier. But excluding $52.6 million in one-time acquisition charges for DigitalStyle and Portola Communications, the software maker posted net profits of $8.8 million, or 10 cents a share, matching analysts' expectations.

Revenues, meanwhile, jumped to $135.2 million, up 80.2 percent from a year ago and 12.4 percent from the previous quarter.

"We met the largest milestone of our quarter by shipping the Communicator and SuiteSpot 3.0 products," said Jim Barksdale, president and chief executive. "We also announced a complimentary sales approach to these products, geared towards extending Netscape's enterprise reach. We continued to drive initiatives on the adoption of industry-wide standards, expanded our list of strategic relationships, and we continued to gain customer relationships and referrals."

Barksdale also noted he is forming an executive committee comprised of sales and marketing executive vice president Mike Homer, products executive vice president Marc Andreeson, and chief administrative and chief financial officer Peter Currie.

"This allows us to make better decisions more quickly," Barksdale said. "Netscape has always been known for its ability to act decisively and quickly."

And Netscape still has more products to come.

"This quarter is an important milestone because it's the last quarter that Netscape will be in its most significant product transition cycle," said Danny Rimer, an analyst with Hambrecht & Quist. "They're coming out of a very long tunnel and have upgraded all of their products."

Netscape is gearing up to roll out such products as the final release of "push" client software Netcaster next month. Meanwhile, its SuiteSpot 3.1 standard edition, which includes Enterprise Server Pro, Calendar Server 3.0, Messaging Server, Collabra Server, and Directory Server, is slated to debut in the current quarter. The SuiteSpot Professional Edition, which carries additional bells and whistles like Mission Control administration software and Proxy Server, is scheduled for release in the fourth quarter.

In a research report, Investment house Alex. Brown, while remaining a bit cautious on Netscape's second-quarter outlook, was "optimistic" on its financial performance in the second half of the year, when it will launch a new cycle of products.

An analyst with Cowen & Company raised his Netscape recommendation earlier this month to a "strong buy" from a "buy" and has set a 12-month target price of 60 a share.

Merrill Lynch's analyst, however, has a "neutral" recommendation on the company, with a long-term concern about the threat from Microsoft (MSFT) and IBM (IBM).

Netscape's shares, meanwhile, have made a wide swing in the past year

Netscape's stock had traded around 46 a share a year ago and climbed to as high as 65 in mid-December. But the stock took a tumble, falling to as low as 23-1/2 a share in late April. The shares, however, have recaptured some lost ground since the first part of the quarter, climbing to nearly 50 this month as Netscape announced a new pricing structure for resellers. Netscape, which announced its results after the market's close, ended the day at 44-1/2, up 5/8 over yesterday.

Barksdale indicated in a securities filing at the start of the second quarter that he would forgo all but $1 in salary during 1997. Barksdale, who last year took home a salary of $100,000 and has exercised options worth roughly 6 percent of the company, initiated the extreme move to demonstrate his faith in Netscape's financial future, a spokeswoman said at the time.

The stock over the past week has risen in response to Netscape's July 14 announcement that it would launch a new three-tier pricing system for its server software. This new structure takes affect August 1 and is expected to attract more value-added resellers (VARs) .

Alex. Brown, in its report, highlighted the new system, noting that the lower minimum requirement for volume orders should bring more VARs to Netscape's door. And with the revised pricing structure, Netscape could effectively receive $20 more per user.

Netscape plans to charge companies that order its standard server software edition $3,495 for 50 users and $4,995 for 100 users.

Alex. Brown, in preliminary checks with Netscape's channel, found that resellers viewed the new, simpler pricing model favorably and was also "positive" on the company's deployment of applications software.