Bloom Off Lotus as It Posts Loss of $17.5 Million : Computers: Decline reflects disappointing revenue from Notes, raises questions on firm’s ability to transform itself.
Lotus Development Corp. reported a $17.5-million quarterly loss Wednesday, raising doubts about the controversial efforts of a personal computing pioneer to transform itself from a spreadsheet company into a PC communications powerhouse.
Analysts had been expecting a modest profit based on the growth of Notes, a pioneering program that enables PC users in corporations to collaborate in their work. Instead, they got the reported loss on disappointing revenue from Notes and the faster-than-expected collapse of the company’s old business, the 1-2-3 spreadsheet program.
The loss came on revenue of $202.6 million for Lotus’ first quarter ended April 1. Only a year earlier, the firm had posted a profit of $21.3 million on revenue of $247 million.
“Obviously we are a little--no, a lot--disappointed,” Jim Manzi, Lotus chairman and chief executive, told analysts and reporters in a conference call. “I don’t want to kid you about that. What many of you are probably wondering is: How much of this is systemic and how much is a one-time event?”
Manzi later answered the question by urging his audience “not to become fixated on earnings over the next two quarters.” And investors, after a brief panic in which the stock lost more than $5 a share, seemed to be keeping their nerve: The company’s shares closed unchanged at $30.75.
But the stock is near its 52-week low, and many analysts are more than impatient with Lotus and Manzi. When he became chief executive in April, 1986, Manzi was given control of a thriving company that boasted the biggest hit ever in the PC software business: the 1-2-3 spreadsheet.
He ascended without a power struggle. At nearly the same time Manzi took over, founder Mitch Kapor left quietly to pursue other interests. Manzi has been paid lavishly--his salary and bonuses last year totaled $877,500. By comparison, Microsoft Chairman Bill Gates made $458,000 in 1994.
In the time that Manzi has been running Lotus, the company has lost its franchise in spreadsheets.
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“About three years ago, Jim Manzi said there was no more growth in the spreadsheet market,” said Stewart Alsop, editor of Infoworld, a leading PC industry trade weekly. “At the time he said it, spreadsheets represented 85% of Lotus’ revenues.
“Meanwhile, Microsoft has made hundreds of millions of dollars in spreadsheets,” Alsop said. Today, Lotus is a distant second in the spreadsheet market.
Lotus’ problems can be traced to well before Microsoft’s move to take it on in the spreadsheet market. At the time, Manzi wanted his own hit product, one that would be as successful as Lotus 1-2-3.
“The joke was that Lotus always had two products: 1-2-3 and the next new thing, and the next new thing was always something different,” said Frank Ingari, a former Lotus marketing vice president, now chief executive of Shiva Corp., a Cambridge, Mass.-based networking software company.
While Lotus pursued the elusive hit, the PC software industry began to change around it. Microsoft introduced the concept of the software suite, incorporating a handful of what had been separate applications, such as word processing and spreadsheets, into one tightly knit package. Customers liked the idea of suites, and Microsoft, which had never had a hit package, finally had a winner with Microsoft Office, introduced in June, 1989.
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Lotus didn’t offer a suite for another three years.
Manzi thought he had found his hit with Notes. Sales of Notes have grown--220,000 copies were sold in the first quarter, up from 140,000 the corresponding quarter last year. But Notes has required a significant investment in development and marketing and has yet to make a profit.
“The question with Lotus has always been: Can they grow the communications business as quickly as the spreadsheet business erodes,” Infoworld’s Alsop said. “I think we have the answer to that.”
Even if Notes can eventually turn a profit, the loss of the spreadsheet business will mean that this industry pioneer will become one of the also-rans.
“Bill Gates doesn’t spend a lot of time these days wondering what Jim Manzi is doing,” Alsop said.
