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Netscape's deal dependency

The company's dealmaking ability is being put to the test, with or without help from the legal woes of rival Microsoft.

Netscape Communications' dealmaking ability is being put to the test, with or without help from the legal woes of rival Microsoft.

In a regulatory filing today, Netscape offered the sober reminder that licensing deals and recent product introductions, not higher prices, are fueling its modest quarter-over-quarter revenue growth--5.6 percent for the April quarter, compared with the three months ending March 31.

Due to pricing pressure, much of the company's success will depend on its ability to land major software licensing deals with PC makers, Internet service providers, and enterprise customers--no easy task given that, in many cases, the company is competing directly with Microsoft.

"A significant portion of revenue for the three months ended April 30, 1998, was attributable to several large-product and Netcenter licensing transactions," the company said in its quarterly "10-Q" filing with the Securities and Exchange Commission. "In particular, one product licensing transaction accounted for greater than 10 percent of total revenues for the three months ended April 30."

As reported, the company exceeded analysts' expectations by reporting a break-even quarter for the April period, but it lost $54.2 million in January. In May, Netscape announced it had signed a major licensing pact with Citibank for deployment of the company's software. Terms of the deal were not disclosed.

Netscape said that such transactions "have continued to increase significantly in average dollar size over the past year" and that it expects them to continue to account for a significant portion of the company's revenue going forward.

But, the company warns: "If Netscape lost, deferred, or failed to consummate one or more such large product or Netcenter licensing transactions, Netscape's results of operations could be materially adversely affected in future periods."

The SEC filing also said that Netscape is not separately recalculating its results for the three months ended April 30, 1997, because it would be "unreasonably costly and burdensome at a time when Netscape is seeking to reduce operating expenses." The company also believes that its results would not "materially differ." In February, Netscape's board approved a change in its fiscal year to November 1 through October 31; it previously reported results on a calendar fiscal year.

In addition, the filing said the company plans to complete "Year 2000" testing on all its products by the end of its 1998 fiscal year.