Netscape Undeterred by 1997 Loss, to Focus on Corporates

Netscape Communications Corp. will immediately begin laying off employees around the world and closing some facilities after news this morning of an expected loss of up to US$115 million for the 1997 fiscal year, including charges for acquisitions.

Netscape Communications Corp. will immediately begin laying off employees around the world and closing some facilities after news this morning of an expected loss of up to US$115 million for the 1997 fiscal year, including charges for acquisitions.

Netscape announced this morning that sagging sales of its Internet client software and slowness in the corporate server software market will likely cause it to report a loss for the fourth quarter and for 1997.

Hit hardest was Netscape's stand-alone client software business, that is, Netscape Navigator and Communicator browser products sold individually to the home and business markets, according to Mike Homer, executive vice president of sales and marketing at Netscape. Looking forward, Netscape plans to rely less on stand-alone client sales, maybe even not at all, and put most of its energy into selling integrated products and services to the corporate market, Homer said.

Pressure from Microsoft Corp., which offers its competitive Internet Explorer browser for free, caused revenues from stand-alone client software to drop to just 13 percent of overall revenues in the fourth quarter of 1997, down from 18 percent in the third quarter, said Netscape Chief Financial Officer Peter Currie.

"The revenue opportunity (from stand-alone clients) is being taken out from under us," Currie said, in response to the fact that Microsoft is charging nothing for its competitive product.

In the face of Microsoft's practices, Netscape has been adamant about continuing to charge for Navigator and Communicator. However, Netscape might start to give its client software away in the very near future, and concentrate solely on generating revenue from corporate server and services sales, according to Don DePalma, a principal analyst at Forrester Research. Netscape CEO Jim Barksdale said today that Netscape will make an announcement in a few weeks regarding a new position on pricing for its stand-alone client software, but would not specify if the company plans to make any of its software available for free.

Netscape saw revenues for Navigator, its core browser product, fall 70 percent this year from 1996 levels, according to Barksdale.

But it isn't only sales of Netscape's client software that suffered in 1997. Growth in the company's corporate solutions business, which sells server and client software as well as services such as installation and support, also was slower than expected in the fourth quarter and in 1997, Currie said. This was mostly due to longer product cycles and increasing competition in the segment, but also because Netscape's offerings in the corporate market are becoming more complex and businesses are taking longer to decide whether to use them, he said. In the long term, the company's product complexity, brought about from acquisitions and new internal development, will boost sales in the segment, Currie said.

Indeed, many analysts have said that Netscape's recent acquisition of Kiva Software Corp. will help it garner more corporate customers for its SuiteSpot family of server products. Many observers believe that Kiva's high-level enterprise server products will complete Netscape's offering in the corporate arena, especially after having acquired Actra Business Systems LLC from GE Information Services Inc. in order to expand its presence in the enterprise electronic-commerce market.

However, despite future growth potential in the corporate market, Forrester's DePalma wasn't surprised that Netscape's profits will take a tumble for 1997. Since the company's growth has been "stellar" over the last two years, it was bound to slow down, DePalma said. The coming year will be a rocky one for Netscape as it attempts to demonstrate why its products for the corporate market are stronger than Microsoft's, he said. In order to win users, Netscape will have to prove that its products are interoperable with many different operating systems, legacy systems and each other, he said.

Companies that are trying to decide whether to go with Netscape or with Microsoft on the back-end are not going to chose lightly, DePalma said. Corporate customers will want to know that the products work with existing systems and are scaleable in the future, he said. Netscape hasn't put enough energy into making sure its products work with existing technologies in the past, he added.

"Words like messaging, transactions and databases were interestingly absent from Netscape's vocabulary until about mid-1997," DePalma said.

Netscape officials would not be more specific about how many people the company plans to lay off, but Barksdale did say that it would reduce staff equally around the world, even though Europe and Asia are growing at slower rates than the U.S. Some of the sectors of the company that may see layoffs include telephone support, direct sales, especially in the stand-alone client area, administration and possibly product development, according Barksdale.

Going forward, Netscape will continue pushing electronic commerce, messaging and customized corporate Internet solutions, Barksdale said.

Netscape, in Mountain View, California, can be reached at +1-650-254-1900, or at http://www.netscape.com/.

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