FileNet Stock Drops Sharply on Projected Loss
Shares of FileNet Corp. slid as much as 40% Wednesday after the company disclosed that weak sales of its file management software will force it to lay off employees and report an estimated $9-million loss for the first quarter.
After sinking as low as $9.50 a share, FileNet’s stock closed at $11 Wednesday, down $4.875 for the day in heavy trading on the Nasdaq market. A year ago, FileNet’s stock was trading as high as $58.50 per share.
FileNet makes software used to store and manage company files on computer networks. It is one of many companies that have profited from the evolution of the so-called “paperless office.” But the industry is undergoing profound changes.
The price dive coincided with the filing of a shareholder lawsuit that accuses the Costa Mesa company of artificially inflating its stock in better times by misrepresenting the health of its business. The suit is not related to FileNet’s latest troubles.
On Tuesday, FileNet warned of the looming first-quarter loss of about 60 cents per share, disappointing industry analysts who had predicted that the company would report a profit of about 15 cents per share.
Company officials said that a number of large contracts had failed to materialize as expected. FileNet said first-quarter sales fell almost 30%, to $47 million from $66.7 million a year ago.
As a result, FileNet said, it plans to lay off an undetermined number of its 1,650 employees and move a Boston-based subsidiary to Orange County.
Analysts on Wednesday continued to raise questions about FileNet’s management but also said the company is a victim of turmoil that has been rocking the whole file management industry since the advent of the Internet and intranets--proprietary networks within corporations.
FileNet executives said that uncertainty in the market contributed to the company’s sales decline. But they stressed that the company’s balance sheet remains strong and that the setbacks are temporary.
“This is a pretty resilient company,” said Mark St. Clare, FileNet’s chief financial officer. “We’ve been through some ups and downs before.”
Previously, FileNet’s software was designed to be used by a limited number of people in a corporation. Only those employees whose PCs were loaded with $500 worth of FileNet’s software could access company records.
But now computers with ordinary Web-browsing software can do the same thing, meaning that far more employees can have access to electronic files at much lower costs. FileNet has kept pace with these trends, and its latest software is designed to be compatible with Web browsers, but many companies are taking a wait-and-see approach, delaying purchases of software.
The shareholder suit filed Wednesday in federal court in Los Angeles was identical to a suit filed in state court last year. One of the law firms behind the suit is Milberg Weiss Bershad Hynes & Lerach, a firm that has filed hundreds of such suits against technology companies in recent years.
Jan Adler, one of the attorneys handling the case, said that the suit was filed for a second time Wednesday simply to take advantage of different rights and remedies available in federal court. The suit covers people who bought FileNet stock between Oct. 19, 1995, and July 2, 1996.
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Equity Squeeze
FileNet’s stock fell to $11 per share Wednesday, an 81% drop from its highest closing price a year earlier. Monthly high, low closing prices:
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1996 High Low April $57.88 $45.75 May $56.00 $46.25 June $48.50 $33.25 July $35.00 $20.63 August $28.75 $23.38 September $26.63 $21.50 October $30.50 $26.00 November $36.00 $27.75 December $36.13 $29.00 1997 January $31.75 $18.88 February $21.00 $18.63 March $20.38 $15.50
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Wednesday’s close: $11.00
Source: Bloomberg News
Researched by JANICE L. JONES / Los Angeles Times
