NetManage's First Quarter Disappoints

Published: May 1, 2006

by Timothy Prickett Morgan

With Attachmate and WRQ united as a single private company, the pressure has been pretty intense for competitor NetManage. The host connectivity and Web integration markets have been tough for the past five years or so, and NetManage just finished a pretty rough first quarter.

NetManage said that for the first quarter ended March 31, license fee sales were $2.7 million, down 49 percent, while services sales were $5.8 million, down 15 percent. Total sales were $8.5 million, down 30 percent. While NetManage had a loss from operations of $1.05 million in the quarter, it booked $308,000 in interest income thanks to its cash hoard, and after taxes and other adjustments, it booked a net loss of $754,000 in the quarter, compared to a profit of $808,000 this time last year.

"While the first quarter is always challenging for our industry, this was a disappointing quarter for NetManage with a larger than anticipated number of customers delaying the purchase of software," said Zvi Alon, the chairman, president, and CEO of NetManage in a statement accompanying the financial results. "Given that several deals that slipped from the first quarter of 2006 have already closed, we do not believe this is indicative of customer behavior for the year. We are monitoring customer buying patterns closely and are focused on accelerating the growth of our sales pipeline."

Now that NetManage has made the cuts that make it possible for it to attain profitability--after years of booking losses on much larger revenue streams--the next question is when venture capitalists behind the privately held AttachmateNetIQ (see the separate story in this issue on the acquisition of NetIQ by the VCs behind AttachmateWRQ) will want to go after the 10,000-strong customer installed base that NetManage has. By doing so, the new AttachmateNetIQ can keep another bigger company from swooping in and possibly creating a larger competitor. Which is why I think any acquisition of NetManage will happen. NetManage has a market capitalization of about $57 million as we go to press, and with $24 million in cash in the bank, it could probably be had for $80 million to $100 million. Alternatively, the people who run NetManage could use that cash, get some VC backing of their own, and take themselves private.