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Netscape Stock Brushes Against New Low

Technology: Plunge came amid expectations of losses in fourth quarter. And for first time, firm is planning layoffs.

January 06, 1998|From Times Staff and Wire Reports

Netscape Communications Corp.'s stock plummeted to its lowest price ever Monday after the Internet software company said competition with Microsoft Corp. will result in a fourth-quarter loss.

The company also said it plans to lay off some of its employees--a first in the 3-year-old company's history--and hire outside contractors to run some of its operations.

Mountain View-based Netscape said it may soon offer its Internet browser software, called Navigator, for free. Doing so would match a very successful ploy by Microsoft, which has gained market share by giving away its Internet Explorer browser.

Giving away Navigator software would represent a remarkable step for Netscape. Until last year, browser sales represented the bulk of the company's revenue. But Netscape has since assembled a broader product lineup, and now sales of the stand-alone browser account for just 13% of the company's sales.

"We have options we did not have going into last year," said Jim Barksdale, chief executive of Netscape. He said the company hasn't decided to give away Navigator for free yet, but acknowledged the success of Microsoft's tactics. He cited surveys showing that 80% of those using Microsoft's browser do so because it is free or bundled with other software.

Netscape said it expects to report a loss from operations of $14 million to $18 million, or 15 cents to 19 cents a share. With $52 million in acquisition charges and $35 million in restructuring costs, Netscape will report a total loss of $85 million to $89 million for the quarter. It would be the first time Netscape has reported a loss from operations since going public in August 1995.

Wall Street had expected Netscape to report a profit of 14 cents a share, according to a recent analyst survey by Zacks Investment Research.

Netscape stock closed at $18.56, down $4.81 on Nasdaq. It was the second-most active issue in U.S. markets and one of Nasdaq's biggest percentage losers. Earlier, the stock traded at an all-time low of $17.75.

Netscape's results, to be reported later this month, illustrate the challenges it has faced since the summer of 1995, when it was Wall Street's darling, enjoying one of the most successful initial public offerings ever.

Its Navigator browser software, enabling computer users to cruise the Internet, was a big hit. But it was squeezed when software giant Microsoft soon introduced a competing browser--which it gave away.

Netscape then began to focus on software that helps big companies do business over networks. But larger rivals, including Microsoft, also compete for that lucrative market--and aren't afraid to cut prices.

In the last quarter of the year the two factors produced a loss.

"It's a combination of [browser] revenue going down rapidly and the enterprise revenues not growing fast enough," said Mike Homer, Netscape's executive vice president of sales and marketing.

Although most industry analysts hadn't expected a loss, they weren't surprised by Netscape's warning. They pointed out that business software is more valuable than the browser, but companies don't make frequent purchases--and many already are customers of Microsoft.

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