Here is an article I received this afternoon: TECH BIZ from CNN/Money and Business 2.0 Wednesday, January 19, 2005
*********************************************************** Be the first to know when there is breaking financial news! Sign up now to receive your BREAKING NEWS e-mail alerts. http://money.cnn.com/services/newsletters/ *********************************************************** Doing the Macromedia limbo The market has overreacted to the declining sales of a major product. By Eric Hellweg, CNN/Money contributing columnist BOSTON (CNN/Money) - How low can it go? It's a question a DJ at a limbo contest poses, and it's likely on the minds of most Macromedia investors as the company prepares to report its third-quarter earnings at the close of the market Wednesday. The "low" in question isn't the company's stock price, which at about $27 a share is hovering far closer to its 52-week high of $31.66 than its 52-week low of $17.30. No, the question relates to how low the demand will dip for Macromedia's MX2004 software suite of Web authoring tools. The demand question seems to befuddle the company and its investors. Macromedia, the maker of such ubiquitous Web authoring tools as ColdFusion, DreamWeaver, and Flash, derives more than 60 percent of its revenue from cyclical products like these. MX2004, a suite containing all those popular products, is entering its 17th month of sales. Demand for the product should be sliding as potential customers hold off buying to wait for all the cool stuff in the next version, which is due out in the second half of this year. Macromedia has historically had a tough time predicting the demand downturn of its products, leaving the Street and investors in the lurch when it misjudges on the downside. "It's unpredictable in the quarter before the product launch," says Gene Munster, an analyst with Piper Jaffray. "Investors regard it as 'Buyer beware.'" But Munster doesn't believe that the quarter will be as soft as some predict. "We talked to six of their 12 distributors in the United States," he says, "and their take was December would be up from September, and their expectation for March is flat to up." Munster notes that Wall Street is expecting flat to down. "In the past, Macromedia has had some erratic patterns," concurs Jamie Friedman, an analyst with Fulcrum Global Partners. "In 2002, they missed earnings when a cycle ended faster than they anticipated." Noticing diminishing interest in MX2004, on Jan. 3 Friedman lowered his estimates for the quarter. That knocked Macromedia's share price down 12 percent, where it still hovers today. Apparently investors didn't pay any attention to the rest of Friedman's report, in which he reiterated his "buy" rating on the stock, with a target price of $31. I think the Street has overreacted to perceived weakness in the company, which explains why Macromedia trades at less than five times its projected 2005 revenue while most of its peers trade at almost six times. But its operating margins are expected to grow from 16.2 percent this fiscal year to 20.7 percent next year. And Macromedia is making great strides toward being a less cyclical company. Its Mobile Flash technology for cell phones has gained traction of late. Macromedia has signed deals with T-Mobile and NTT DoCoMo. Friedman is predicting that the mobile segment will bring in $8.5 million in revenue for the quarter, while Munster says it could be less, in the range of $6 million to $8 million. If Friedman's estimate -- and his growth projection of 5 percent -- is accurate, the mobile segment will soon account for 10 percent of Macromedia's revenue. And since the mobile revenue is recurring, not cyclical, it should help the company smooth out the quarterly projections that so annoy investors. Furthermore, with much higher margins coming from this new line of business, Macromedia's earnings will look stronger. Meanwhile, if the market remains convinced that Macromedia can't sell its core product, well, that's a good opportunity to buy some of its shares. ### Check out all the TECH BIZ columns at: http://money.com/technology/techinvestor/ ============================================================================== This message is for the sole use of the intended recipient. If you received this message in error please delete it and notify us. If this message was misdirected, CSFB does not waive any confidentiality or privilege. CSFB retains and monitors electronic communications sent through its network. Instructions transmitted over this system are not binding on CSFB until they are confirmed by us. Message transmission is not guaranteed to be secure. ============================================================================== ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Logware: a new and convenient web-based time tracking application. 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