Revenues Decline at NetManage As It Announces Expansion Into China

Published: October 30, 2007

by Alex Woodie

Third quarter revenues for System i and mainframe emulation and modernization tools vendor NetManage declined by about 7.5 percent to $8.7 million, but profit rose by nearly half a million dollars, according to its SEC filing last week. The company also announced plans to expand into China, a potentially lucrative growth area for the System i-focused vendor.

For the third quarter, which ended September 30, NetManage revenues came in at about $8.7 million, compared to $9.4 million for the third quarter of 2006. Net income increased to $493,000, or $0.05 per share, compared to a profit of $33,000 in the same quarter a year ago, or $0.00 per share. Profits were helped by the recovery of $281,000 due to a previously recorded restructuring charge in the most recent quarter.

Zvi Alon, chairman, president, and CEO of the Cupertino, California, company, said he was pleased NetManage turned a profit during its "seasonally challenging third quarter." Alon also praised achievements during the quarter, including the signing of 16 new "technology deals" and increasing the size of its channel network by 30 percent. "We remain focused on driving revenue, developing new relationships and achieving long-term profitability," he says.

NetManage's stock, which is traded on the NASDAQ, increased slightly following the release of financial results, and is trading around $4 per share. However, its stock value has declined consistently since the beginning of 2004, when the company was trading at around $11 per share.

The company also announced the opening of a new office in Shanghai, China, which the company says marks "the next phase in the company's accelerated growth and expansion into new markets."

NetManage sees a big upside to the Chinese market, which it characterized as "legacy rich." The company estimates that there are 2,000 "global companies" operating in the region that could be good candidates for NetManage's application modernization solutions. The company plans to make changes to its software to foster its adoption in China.

Part of its Chinese strategy entails working to facilitate the outsourcing of development work from the United States to China and independent Chinese IT firms. "The IT infrastructure outsourcing capabilities are vast in China and are a major part of our business strategy with the new office," says Yi Fan Chen, an IT veteran who is heading the Shanghai office as vice president and general manager of China operations.

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