QuarterDeck

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By SARA FISHER

Staff Reporter

Quarterdeck Corp., once one of L.A.’s fastest growing and most promising companies, is on life support and may not survive.

The utility software company’s chief executive resigned last week, significant layoffs were announced and net losses are ongoing, pushing Quarterdeck to penny-stock levels on Wall Street.

While analysts’ long-term prognoses for the Marina del Rey-based company run the gamut, there is consensus that Quarterdeck is in serious trouble and in danger of going out of business.

“Investors and the Street have given up on Quarterdeck,” said Rick Berry, director of equity research at J.P. Turner & Co. LLC in Atlanta. “For me, it’s over for the company in the sense of actively tracking the stock.”

The current predicament is a far cry from the company’s former up-and-comer status, when it ranked near the top of the Business Journal’s list of fastest-growing public companies in 1997.

Quarterdeck executives refused to comment last week, saying they will announce the full extent of layoffs and losses for the quarter ended June 30, as well as new management personnel, at the end of the month.

Quarterdeck’s stock price reflects the extent to which investors have given up on the company. After trading in the $30 range a couple of years ago, its stock was hovering around 66 cents a share last week.

Analysts expect that share price to decline even further over the next two weeks.

“Quarterdeck is a very risky stock,” said Steven M. Frenkel, director of research for Drake & Co. “There is no bottom; the value can continue to fall.”

For its second quarter ended March 31, Quarterdeck posted a net loss of $10 million (16 cents per share), compared with a net loss of $832,000 (2 cents) for the like quarter in 1997. Quarterdeck announced it expects a “substantial” loss for the quarter ended June 30.

Just last week, Curtis Hessler resigned as president and CEO in what he called part of his own cost-cutting program. “At this point I can do more at lower cost for Quarterdeck from an advisor role,” he said.

Hessler was appointed at the end of January 1997. He had held executive positions at Unisys Corp., Times Mirror Co. and more recently, computer company I-Net Inc., before being brought in to turn Quarterdeck around. By then, the stock and profits already had begun to fall.

Hessler almost immediately brought in a new management team, which sparked an upswing in analyst confidence and stock value. Neither boost lasted long.

“The new team hasn’t been able to turn the company around at all,” analyst Berry said.

The company has appointed King R. Lee, a member of Quarterdeck’s board, as interim president. This is the third time Lee, who runs a management consulting firm, has stepped in to head the company on a temporary basis.

At end of June, the company also announced that it was planning layoffs in the face of continuing weak revenues. No specifics were given, but the company described the cuts as “significant.” Quarterdeck last undertook a major round of layoffs in 1996, when it reduced its worldwide head count by 40 percent.

Quarterdeck employed 486 workers worldwide as of March 31, the most recent figure available.

Another recent divestiture by Quarterdeck was its sale in May of its Future Labs Inc. subsidiary to Sunnyvale-based ActiveTouch Inc., a private Internet software company. Financial terms of that sale have not been disclosed. Future Labs had developed a computer server for real-time collaboration on the Internet. According to analysts, that endeavor wasn’t too successful.

A multitude of woes sparked Quarterdeck’s expense trimming. First, PC software sales have been slowing down, which means that sales of utility software have slowed accordingly.

Second, Microsoft Corp.’s delay in releasing Windows 98 meant Quarterdeck had to delay releasing its own Windows-related utility software. Also, Quarterdeck hasn’t escaped the Asian economic slump. Frenkel said 20 percent of the company’s sales came from Japan.

A more central issue centers on the utility software market’s viability. Some analysts believe the market will continue to shrink, since monoliths like Microsoft are incorporating more utility software into their own products at little extra expense.

“Quarterdeck’s main problem is that their utility products are being replicated (by competitors) for a nominal cost, cutting it out of the market,” Berry said. “Microsoft won’t give away any business. It will continue to provide its own utilities rather than let another company profit from that niche.”

Other industry watchers agree that utility software companies may get squeezed by Microsoft, but contend that they will never be put out of business altogether.

“I can guarantee you that there will always be two guys in a garage that develop brilliant utilities that sell well,” said technology analyst Joe Delany, from J.V. Delaney & Associates. “The utility market is never going to be entirely swallowed up by the big players.”

Quarterdeck executives would prefer to believe the latter assessment. The company has continued to launch a large volume of new utility software products. Last week, it unveiled Diskclone and Remove-It 98, utility programs for Windows 98. It also debuted Cleansweep 4.0 and Realhelp, more PC utilities. Over the last two years, Quarterdeck products have attracted critical acclaim, picking up various industry prizes. The question remains, however, whether its products will also achieve commercial success.

“For now, the jury is still out on the company’s survival,” Delany concluded. “We need to see the numbers and magnitude of the company’s (fiscal third-quarter) loss before we declare it dead.”

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