Just months after TouchStone Software Corp. seemed headed for a record year of sales and profits, the company said Thursday it might actually lose money in 1995 because of disappointing sales of its computer program that helps users prepare their machines for installation of Windows 95.
Since August, TouchStone has shipped 178,000 copies of its WIN'95 Advisor, a program that seemed destined for blockbuster sales because of its ties to Windows 95, the highly touted operating system made by Microsoft Corp.
But so far, just 70,000 copies of the Advisor program have been sold, and the company expects that software retailers and distributors may ship back to TouchStone the remaining 108,000 copies, said Shannon Jenkins, chief executive of the Huntington Beach company.
The Advisor program is still the best-selling TouchStone product ever, but expectations surrounding the launch of Windows 95 were so huge that company officials acknowledge they simply aimed far too high.
"We're really disappointed," Jenkins said. "Because of the enormous expectations retailers had for sales of Windows 95, the number we actually sold was completely overwhelmed by unsold inventory."
To account for the returns, TouchStone has set aside an additional $2 million for refunds to retailers and distributors, company officials said. As a result, the company "will have a sizable loss for the quarter," Jenkins said. "For the year we might end up breaking even, or might end up having a loss."
TouchStone's stock price tumbled 32% following the news, closing at $3.125, down $1.50 per share, in Nasdaq trading. The stock had been trading as high as $17.63 in August, when the Advisor program was introduced along with the launch of Windows 95.
Jenkins said the lackluster sales of the Advisor program stem from disappointing sales of the Windows 95 upgrade, an operating system designed to replace an earlier version of Windows.
Sales of Windows 95 upgrades totaled about 4.5 million units through Nov. 18, but have been falling off dramatically since the program was introduced, according to PC Data Inc., a Virginia-based research firm. Sales of Windows 95 fell by 50% from September to October, and another 40% in November.
Windows 95 comes installed on most new computers, and that has accounted for sales of an additional 7 million copies of the program, analysts said. But those sales don't help TouchStone because its product is designed solely to help users who already have computers and just want to install the new version of the Microsoft program.
TouchStone tried to boost sales by dropping prices as much as 66% on the Advisor program, which originally sold for $29.95 a copy, but sales still stalled, Jenkins said.
Sales of another TouchStone product, WINCheckit, a diagnostic program designed for use with earlier versions of Windows, have also dipped in recent months.
Analysts said TouchStone is not the only company to be stung by excessive optimism surrounding Windows 95.
"I think the Windows 95 applications are doing pretty well, but people had these nutty expectations," said Ann Stephens, president of PC Data. "However, Windows 95 is here to stay, and sooner or later all these other machines will convert."
Jenkins said future upgrades are unlikely to absorb the glut of inventory, but added that she does expect the company to return to profitability in the first quarter of 1996.
For the first nine months of 1995, TouchStone reported a profit of $1.3 million, or 19 cents per share, on sales of $9.7 million.
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Touchstone Stock Price Slides
Touchstone Software's stock, which traded at nearly $18 in August, closed yesterday at $3.13. The tumble was attributed to lackluster sales of its software products geared toward Windows 95 users. Here is the 52-week high and weekly closing stock prices:
Thursday's close: $3.13
Source: Dow Jones