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2HRS2GO: Companies have survived Cowpland before

Fans of Corel, take heart: there is a precedent for post-Cowpland survival.

Corel (Nasdaq: CORL) made Wall Street headlines for all the wrong reasons over the last several months, so the resignation of founder Michael Cowpland probably doesn't surprise anyone. Regular readers of ZDII's commentary know he dosn't have any fans here.

In fact, those readers probably have noticed that the media attention devoted to yesterday's announcement underscores the degree to which people are captivated by Cowpland's theatrics. We're talking about a company that was never a truly significant player in the software industry, except perhaps as a comical foil for Microsoft (Nasdaq: MSFT).

Oh, Corel's legion of fans (or, more accurately, Microsoft haters) will tell you Corel is a leader in value-priced retail sales of office applications. And they'll tell you that the company's well-reviewed Linux products are destined for greatness.

But in terms of market share and financial performance -- the metrics that truly measure a company's viability -- Corel has always been a bit player. Yet ZDNet has a quartet (now a quintet, with this column) of articles on Corel. CNet displays Corel as a featured story. Even a fuddy-duddy news organization like The Wall Street Journal put Corel as the top story in the technology section of WSJ.com.

Shares of Corel gained more than 8 percent today on the news of Cowpland's departure as CEO and chairman, but I'd be lying if I predicted a bright future for Corel with a new executive. I think Corel as an independent company is dead; it's simply in a bad field, with one foot entrenched in a failed war against Bill Gates and the other planted in a market whose core audience believes in free software.

Fortunately for Corel's advocates, I've been wrong many times before. It comes with the territory: the safest path to correctness is following the ticker, but that makes for uninteresting writing. There's little point in reaffirming what everyone already believes.

And if you want to find reasons to disagree with me, you might find some faint hope in history, because the first Cowpland-founded company to reach a state of near-oblivion managed to revive itself.

Followers of the Canadian technology scene know about Mitel (NYSE: MLT), a vendor of equipment and components for communications systems. Cowpland and Terry Matthews founded Mitel roughly three decades ago, though you'd never know it from Mitel's own website: a search for "Cowpland" on www.mitel.com turned up zero documents.

Matthews and Cowpland created Mitel as a specialist in private branch exchanges, which let companies build internal phone networks. By January 1982, Mitel was trading at a price in the low 20s. Within a year, the stock climbed as high as 30 and change and the company was worth more than $1 billion -- an impressive size in those days.

You can guess the rest of the story: Mitel couldn't handle its growth, and the stock gradually slid into the single digits by the mid-1980s, when Cowpland moved on to create Corel. By late 1991, Mitel shares weren't even worth a dollar and people were wondering how this PBX stalwart would survive.

The company started by tightening financial leaks in the current operation. Gross margin for Mitel rose to 50 percent in 1997 from 46 percent in 1993. Net income more than tripled over the same period.

Since 1998, Mitel's efficiency figures have fallen a bit, but they've dipped for a good reason, as Mitel moved away from analog PBX systems and into growing fields.

Mitel now manufactures networking components and integrated circuits; Mitel Semiconductor generated 56 percent of Mitel's overall revenue, not to mention all of the company's net income. Mitel Communications -- the systems division -- is obviously the laggard, though it's trying to move into the buzzword-infested field of convergence, with products that combine data and voice-over-IP.

Plenty of people, including me, have criticized Corel's own fascination with buzzwords in the software industry. But Mitel has found something and is sticking to it, as opposed to jumping from one model to another, as Corel has done. More important, Mitel has remained profitable while expanding revenue at a consistent rate.

Make no mistake -- Mitel is not some shining paragon of a technology corporation. It's not a leader in any of its growth industries. And the company's stock price was inflated not so long ago because of overall market momentum.

But at least Mitel isn't the dog it was a decade ago. The founders did not kill the company, partly because the product was good enough to keep Mitel going until the company could enter cutting edge communications fields.

It seems doubtful that Corel can wring enough operating income out of the graphics and office suite businesses to keep the company afloat long enough to give its Linux initiatives a chance (and even then, it's only a chance).

That's one reason why the Mitel and Corel comparisons shouldn't be stretched very far. They may share a common progenitor, but there really aren't many parallels between Mitel and Corel.

For one thing, Mitel plays in the communications industry, an area with explosive growth and traditionally huge contracts. Corel, on the other hand, has always been a creature of lower-end, mostly retail products. To vault into loftier (read: enterprise) realms of software, Corel would have to make a far larger transition than Mitel required.

Still, at least Mitel demonstrates that Life After Cowpland is theoretically achievable. A new Corel might yet prove me wrong.

If nothing else, Corel enthusiasts can take comfort knowing there are plenty of precedents for that last one. 22GO


• A few suggestions for Corel's board
• Cowpland's exit too little, too late for Corel shareholders >