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Corel reports loss, more cutbacks to come

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CIOL Bureau
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Susan Taylor

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OTTAWA: Struggling Canadian software developer Corel Corp. said on Tuesday it

is widening second-quarter losses reflect sinking sales for mature products and

that dramatic cost-cutting measures are still needed to stem the losses.

The loss was in line with a recent warning from the Ottawa-based company.

Corel–best known for its WordPerfect and CorelDraw software until its entry

last year into the Linux market–announced an operating loss, excluding

one-time charges, of $23.6 million, or 36 cents a share. This is a steep decline

from an operating profit of $9.7 million, or 14 cents a share, in the

year-earlier quarter.

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"It was a challenging quarter," chief executive Michael Cowpland

said in a conference call with media and analysts.

Corel warned on June 15 of a net loss of around $22 million to $24 million.

That followed a forecast in March of an $18.8 million operating loss.

Second-quarter sales were down 48 per cent to $36.6 million from $70.5

million in the year-earlier quarter. Cash at the quarter's close stood at $9.9

million. Corel said the latest results included a one-time loss of $1.1 million

from equity investments and a $1.2 million gain from the sale of 560,000 shares

in GraphOn Corp., in which it has a remaining stake of about 1.6 million shares.

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The weak performance once again raises questions about Corel's future and how

the company will cut sufficient costs to stay afloat.

The firm, struggling as customers are scaling back their inventory of older

product lines, has not seen Linux revenues make a major contribution. Corel,

which has projected Linux sales of $20 million to $30 million this year,

recorded Linux revenues of $2.6 million in the second quarter for a six-month

total of $4.9 million.

The company recently secured a much-needed financing deal worth C $30 million

in the wake of its failed acquisition of Inprise/Borland Corp. This month it cut

21 per cent of its staff, or 320 employees.

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The layoffs will save about $11 million annually, leaving $29 million in

cutbacks so that Corel could reach its $40 million cost-reduction target.

"What we're saying now is that if we are successful in the

implementation of our cost-savings plan, that the results for our Q3 are

expected to be better than both Q1 and Q2," said chief financial officer

John Blaine in a conference call. "We have not finalized that plan...(but)

we do not have any further layoffs anticipated."

The company does not plan to sell any major product lines or seek a merger

partner, Blaine added.

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Analysts suggest that meeting the $40-million target will be difficult.

"They have miles to go before they sleep," said Duncan Stewart,

fund manager at Tera Capital Corp., which has held Corel shares at several times

but does not own the stock at present. "There's a limited number of places

one can get money, and I've run out."

Improving on the quarter's results presents another problem, Stewart said.

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"Based on what they told us, it's very hard to come up with a number for

Q3 that is better than Q2, especially as Q3 is a weak quarter, there's no

product being released and that erosion he talked about (for inventory) is going

to continue."

Shares in Corel, which have seen steady declines since a record peak of

C$64.65 on Linux fever in December, gained 65 Canadian cents to close at C $6.00

on the Toronto Stock Exchange before the results were released. On Nasdaq, the

stock rose 8/16 to close at 4-3/16.

(C) Reuters Limited 2000.

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