The volatile day began this morning when Bruce Smith, an analyst with Merrill Lynch, downgraded Netscape to a "neutral" rating from "accumulate" in the medium term and "buy" in the long term. The company's shares fell 5 points to a day's low of 41 by midmorning, with 2.647 million shares trading hands.
But by the end of the day, the stock rose to 42-5/8, with 3.8 million shares trading. That still was more than 3 percent below yesterday's closing price of 46.
"We believe that we have underestimated Microsoft and that the window of opportunity for Netscape to partner is closing much more rapidly than originally thought," Smith wrote in a report. "With Microsoft's success and recent problems in the partnership area [for Netscape], we felt the risk for Netscape has significantly increased."
All this came into play despite a report released today by Zona Research, which polled 150 technology managers at U.S. corporations and indicated that 83 percent of respondents use Netscape Navigator as their primary browser. The survey did show that Internet Explorer's market share has more than doubled since February, but only 8 percent of respondents claimed it as their primary browser.
Smith, however, also believes that Netscape has made little progress in developing major strategic technology and marketing alliances that could improve its competitive advantage over Microsoft.
Netscape has seen its market share for browsers drop to 62.7 percent from 78.2 percent in August, compared with Microsoft's gains to 29.1 percent from 8.3 percent during the same period, according to Web Trends. "We feel dominance on the desktop is critical to Netscape's success in other areas...We now feel that Netscape must act within the next three to six months or their leadership position will be eroded to such a degree that strategic alliances will not matter," the report states.
Smith notes industry sources have cited major tension has emerged between Sun Microsystems and Netscape. Executives at Sun apparently tried to mend the relationship earlier this month and the results of that meeting were unknown, Smith's report states.
"We do not know the outcome of these meetings, but the fact that this was necessary is disturbing," Smith wrote. "The more Netscape tries to do itself, the less likely they will be successful, we believe."
Merrill Lynch had estimated earlier that Netscape would generate revenue of $85.6 million for the September quarter and net profits of $6.8 million, or 8 cents a share. The brokerage house remains comfortable with that estimate.
Netscape officials, however, contend that Smith's assessment doesn't look at the whole picture.
"The writer has not studied the full range of technologies that is important to the company," spokeswoman Jennifer O'Mahony said. "Enterprise sales represent 80 percent of our revenue, and a large portion of that comes from intranets. He seems focused on our browser market, and that's only a portion of what we do."
She said the company has multifaceted alliances that have grown over time and expanded. She cited a deal announced last May where Hewlett-Packard would bundle Netscape software with HP products.
As for its relationship with Sun, O'Mahony said the two companies have a "good working relationship. We share common views on technology."