Corel says first quarter numbers show profit

Software vendor Corel Corp. yesterday said that its push toward profitability may be coming more quickly than expected, though analysts said it’s still too early to tell.

The Ottawa-based applications vendor released preliminary financial results for the first quarter ended Feb. 28, showing an estimated net income of US$500,000. The numbers mean that the struggling software maker will achieve profitability two quarters earlier than its original prediction of the third quarter, the company said.

But the long-awaited yet small net income apparently comes only after some $2 million in interest income is added in to a much-reduced operating loss for the quarter of $1.5 million, according to Corel.

David Wright, an analyst at BMO Nesbitt Burns Inc. in Toronto, said, “they got the profitability based on increased interest income,” but added that the numbers are largely unimportant at this point. Instead, he said, Corel’s true financial future will be gauged by its new relationship with Microsoft Corp.’s .Net strategy, launched last summer. Details of the HailStorm user-centric Web service were announced Monday.

.Net is being touted by Microsoft as an easier way for applications to be shared over the Internet, while supporting a variety of computers and devices in the form of Web services. Last October, Microsoft invested $135 million in Corel as part of a strategic relationship, where the companies will do joint development work on .Net.

Corel’s future value “will be based on whatever the .Net initiatives are,” Wright said, adding that the relationship with Microsoft will be far more important for the company than the promising first-quarter results. “Everything that happens between now and then is sort of irrelevant to me.”

Cost of sales and operating expenses for the first quarter are expected to be between $33 million and $34 million, resulting in a loss from operations of up to $1.5 million as compared to $62.8 million in costs and $18.7 million in operating losses for the same quarter last year.

Corel’s first-quarter estimates list revenue at about $32.5 million, which is lower than the company’s earlier expectations. In the same period last year, Corel reported a net loss of $12.4 million on revenues of $44.1 million.

“We are pleased with these early signs of success with our new strategic direction for the company,” said Corel CEO and president Derek Burney in a statement. “While our revenues were lower than we expected, our positive operating cash flow and earnings make it clear our hard work is paying off.”

A Corel spokeswoman said the company would have no additional comments about the first-quarter figures until a conference call with analysts March 29.

Dan Kusnetzky, an analyst at IDC in Framingham, Mass., said that Corel’s work with Microsoft may appear good on its face, but it could bad for the company in the long run.

“Corel accepted a large investment from Microsoft to develop a .Net component for Linux, then Microsoft announced it is doing its own .Net component for Linux,” Kusnetzky said. “How will that affect Corel?”

Also, he said, now that Corel has entered into a project with Microsoft, “will the open source community trust them again?”

Corel has undergone a series of shake-ups in the past year, including a retrenching in January when it said it was considering a spin-off of its Linux operating system to allow it to focus on its graphics tools as its main source of future revenue growth.

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