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Autodesk in dip of business cycle

Acquisition charges and a slow product cycle pull down Autodesk's earnings, but new products and strategies may revitalize the company.

Acquisition charges and a slow product cycle pulled down first-quarter results today for Autodesk (ADSK), but new products and strategies may revitalize the company in the near future, analysts say.

The maker of computer-aided design and multimedia software reported a net loss of $52.7 million, or $1.15 a share, for the quarter ending April 30, compared with a net income of $19.1 million, or 39 cents a share a year ago.

But the company attributes the loss to nonrecurring charges of $58.1 million associated with recent acquisitions and the March merger with Softdesk. Without the nonrecurring charge, the company would have reported a profit of $5.4 million, or 10 cents a share, which met analysts' expectations.

Revenue decreased to $119 million for the quarter from $136.3 million in the same quarter last year.

John Rossi, an analyst with Robertson Stephens & Company, said the quarter performed well and that overall sales were on track and perhaps better than expected. He added that the company painted a rosy outlook for its fiscal 1998 due to the recent release of AutoCAD and its diversification strategy to overcome a slow growth market.

"We did ship a new release of AutoCAD last week and that should be a good driver of growth for the next year, but not the whole story," said Christine Tsingos, Autodesk's treasurer. "Last year, AutoCAD was 95 percent of our revenue and now it's only 70 percent. Our other markets are starting to take off." She added that throughout this year the company will be shipping products in each of its markets.

The company has high hopes for its AutoCAD Release 14, a new version of its flagship design software product. "The earnings go through a roller-coaster ride. When they have a new product sales go up, and when the product starts aging the sales go down, so the thrill is still ahead" with the recent upgrade of its flagship product, said Rossi.

He added that diversification into new markets will smooth out the product cycle so that the down part of the cycle will not be as intense. The company's revenues and net income have been falling for the past four consecutive quarters, but Rossi noted that it is just part of the slow product cycle.

"Next year looks solid because of new products," Rossi said, "but execution is the big factor for the fiscal '99." In late April, the company picked up a Silicon Graphics VP to be its chief financial officer. The position of CFO was vacant since last September when Eric Herr was promoted to president.

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