Corel is expected to announce the sale of its fledgling Linux business as part of a corporate strategy it will unveil later this month, analysts said on Monday.
The plan, which will be presented to staff and media on Jan. 23, is designed to return the struggling company to profit and long-term growth.
The news appeared to cheer investors, sending Corel shares up nearly 7.5% on Nasdaq and 4.5% on the Toronto Stock Exchange. In Toronto, the shares closed up 12 Canadian cents at C$2.75. On Nasdaq the stock was up 1/8 at $1-13/16.
Three main thrusts will make up Corel`s strategy, predicted Duncan Stewart, technology analyst and fund manager at Tera Capital Corp.
"Number one is the sale of their Linux business, number two will be...their renewed commitment to graphics and office suite (software)...and the third will be embarking upon some sort of interesting joint venture with Microsoft," he said.
Analysts are still waiting for details of the joint development alliance that Corel struck in October with Microsoft, Stewart said.
The deal, which saw Microsoft invest $135 million in Corel, is focused on Microsoft`s .NET project to allow Web sites to work together.
Ottawa-based Corel, which is best known for its WordPerfect and CorelDRAW software, suggested in November that its Linux product line could be sold under a corporate review of operations.
Last month, it was reported that Corel had agreed to sell its Linux products to New York-based venture capital firm Global Linux Partners for $5 million. Under that arrangement, Corel would receive a 20% stake in the newly formed company, the National Post newspaper reported.
Corel`s 1999 rush into the market for Linux, which is an alternative computer operating system to Microsoft`s market-dominating Windows, failed to pay off amid slumping sales for the company`s mature product lines.
Despite bold sales predictions, Corel recorded just $6.1 million in Linux product revenues in the last nine months, well shy of the company`s $20 million target.
"One of the things that they have determined is that what they have currently (for Linux) is not viable in and of itself. So, one way or another, they have to make a change," said Bluestone Capital Partners` Jean W. Orr, one of the few analysts who still covers Corel.
"It might make sense for them to sell it off or it might make sense for them to build it into a stronger business."
Corel must overhaul more than its Linux operations under the new strategy, Orr said.
The company should find ways to better benefit from its large base of customers, such as aggressive marketing to sell updated versions of its software lines, for example.
"What I want to see them do is position themselves for changes that are occurring in terms of the role of the PC and how do they best take advantage of that," Orr said. "How do they best take advantage of the whole Internet phenomenon?"
The analyst predicts Corel will return to profit in its fourth quarter, posting adjusted earnings of 3 cents per share on revenues of $45 million. Corel is expected to report its results in the last week of January.
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