FileNet System to Store Documents May Tap Vast Market, Boost Company Growth
FileNet, a Costa Mesa technology firm, has figured out a way to store millions of pages of documents inside an optical-disk jukebox, and some analysts believe that its system could become as popular in the office as microwave ovens are in American kitchens.
“People will wonder how they ever lived without one,” said Robert C. Abraham, a computer analyst with Freeman Associates in Santa Barbara. “As each system is sold, it will become easier and easier to sell the next one.”
Rich Edwards, a securities analyst with Robertson Colman & Stephens in San Francisco, agreed. “There is a huge untapped market for this product,” he said.
The FileNet system uses telefax-like devices to read information from paper documents. The system digitally encodes visual images of the pages on 12-inch optical disks. Each disk can store 50,000 pages of records.
As many as 204 disks are contained in a single machine that operates much like a jukebox. A robotic arm picks up and inserts the disks into a scanner unit, which reads the information so it can be displayed on a video terminal or reproduced on laser printers. Eight of the devices can be combined into one unit for maximum storage of 85 million pages.
Edwards projects that the cost of a FileNet system, which ranges in price from $500,000 to $2 million, will decline by 20% a year over the next four years, making them affordable for an array of businesses. About 135 systems are in operation today.
FileNet’s sales and earnings should grow by 30% to 60% annually through 1990, Edwards said. The company’s earnings jumped from $769,000 in 1986 to $4.8 million in 1987. Edwards is projecting earnings of $6.9 million on sales of $80 million for 1988.
For the first quarter of 1988, the company earned $1.4 million on sales of $15.5 million. That compares to earnings of $651,000 on sales of $9.2 million during the same period in 1987.
Ted Smith, who co-founded the company in 1982 with FileNet chief engineer Edward Miller, said those projections are “absolutely in the ballpark.” He said the company should reach sales of several hundred million in the next five years.
Smith said $25 million raised when the company went public last July will be used to finance growth. “The focus in 1988 is to expand and build volume both domestically and in foreign markets,” Smith said. The company will increase its domestic sales force from 30 to 50 and its technical support staff from 27 to 48. In addition, the company is selecting distributors in South America, the Far East and Europe, Smith said.
FileNet stock was issued at $16 a share when the company went public last year and traded as high as $21.50 in September before tumbling to a low of $10.875 following the October market crash. FileNet closed on Friday at $14.75 a share, unchanged for the day.
So far, FileNet’s products have been used mainly by financial institutions and government offices, which generate mountains of paper work. But company engineers are working on design improvements that would allow personal computers and telefax machines to access a FileNet system, thus increasing its potential applications. The St. Louis office of Union Pacific Railroad, for instance, recently purchased a FileNet system that communicates with customers’ telefax machines over the phone lines.
If FileNet’s growth plans are to be realized, it will have to compete with two technology giants. Wang and Kodak weighed in with similar optical-disk systems last year.
Smith welcomes the competition, though: “We feel the entry of such large players should help rather than hurt because it should expand the market.”
