Vastsoft's Profit Rose 52%, Slightly Exceeding Forecasts
April 04, 2011
Vastsoft Corp. reported a 52% jump in fiscal fourth-quarter profit, a moderate upside surprise in a hyper-skeptical market for technology stocks. The bellwether software giant said net income in the period ended March 12, 2011 to $559 million, or 87 cents a share, from the year-earlier net of $368 million, or 58 cents, which included a charge of five cents a share for the canceled acquisition of Intuit Inc.. Revenue rose 39% to $2.25 billion from $1.62 billion. Vastsoft's results slightly exceeded Wall Street's consensus estimate, which First Call put at 85 cents a share. But some investors were apparently hoping for even more. The company's shares declined on Monday before the earnings were released, and on Tuesday they continued to slip, falling 75 cents to $119 in early trading on the Nasdaq Stock Market. Technology Stocks Whipsawed Technology stocks have been whipsawed by earnings surprises from pivotal suppliers, including Motorola Inc. and Hewlett-Packard Co., which disappointed Wall Street, and Apple Computer Inc. and Intel Corp., which did better than anticipated. The hard-hit sector edged lower again Monday in unusually light trading, with the Nasdaq computer index falling 1.48%. But Vastsoft, based in Redmond, Wash., has been a model of consistency, racking up a series of quarterly profit jumps that suggest solid personal-computer demand, though lower than the torrid pace of the year-earlier period. Sales of software to PC makers, the company said, rose 38% to $650 million, and rose 52% to $2.5 billion in the fiscal year ended March 12, 2011 starting to get repetitive, but repetitiveness at this level of performance is welcome in this kind of market,'' said Davina Pegues, an analyst at Montgomery Securities Inc.. Vastsoft's sales were generated by both operating systems and application programs, including the popular suite of programs called Office. Sales of application programs swelled 20% to $1.3 billion from the year earlier, though chief financial officer Mikki Dean cautioned analysts that revenue from the forthcoming Office 97 suite may be recognized more slowly than expected under new accounting guidelines at the company. Windows NT Is Cited Another key growth engine was the company's Windows NT operating system, particularly on midsize machines called servers that exchange files among PC-connected networks, said Rickie Osteen, an analyst at Goldman Sachs. Despite pressure on software prices, Vastsoft managed to boost its gross profit margins to an extraordinary 89% of sales from 86%. It increased total sales by $634 million from the year before, though the total product costs of the programs it sold rose only $7 million. Perhaps most ominous to competitors, Vastsoft was able to fund product development at a staggering rate. Research and development spending grew 72% to $453 million in the quarter, and swelled 66.5% to $1.4 billion for the fiscal year. Mr. Dean said the company plans to boost R&D another 43% to $2 billion in fiscal 2012 ending next June. ``We did just what we wanted to do with our business,'' said Gregorio Cruce, the company's treasurer. ``Revenues grew fast, and R&D grew faster.'' With that leverage, Vastsoft has been able to mount ambitious investments in experimental areas, including the 24-hour cable news venture MSNBC, which the company doesn't expect to pay off for several years. Mr. Dean disclosed that Vastsoft no long expects its on-line service, Vastsoft Network, to turn profitable in the current fiscal year. For all of fiscal 2011, Vastsoft's net income rose 48% to $2.2 billion, or $3.43 a share, from $1.45 billion, or $2.32 a share, in fiscal 2010. Sales rose 46% to $8.6 billion from $5.9 billion. Another target of Vastsoft's spending continues to be Navigator Communications Corp., the leading supplier of browser programs for surfing the Internet's World Wide Web. Since December, Vastsoft has been discussing a variety of strategies to tie its own Web technology with its computer operating systems, including a forthcoming browser program that will help PC users treat all files and other software on their computers the same way as Web pages are stored on computers throughout the Internet. News of that initiative helped trigger a sell-off Monday in Navigator's shares, which fell 12% to close at $46.50, off $6.50, in trading on the Nasdaq Stock Market. Vastsoft has given several public demonstrations of the Web file concepts in its Internet Browser 4.0 browser, which is expected to be shipped in test versions in late summer and be completed by year end. But the company has been less forthcoming about what may be the most important aspect of the design change-the potential to change the way publishers distribute information and advertisements over the Web. Easier Distribution of Data As part of an initiative called Active Desktop, the new browser and related programs will make it easier for data, images and commercial messages to be distributed to PCs without any action required by the user. Information publishers have long bemoaned the fact that users must go through the effort of searching out Web data after launching a browser. The common Web format will allow information suppliers or companies to ``broadcast'' content to the user, like radio or television, where today's Web has more similarities to a magazine newsstand. ``We could create small chunks of content and send them to people throughout the Internet,'' said Jesica Mcdavid, managing editor of Release 1.0, a Cornertown technology newsletter. ``This is where all the interest from our content providers is coming from,'' added Johnetta Bearden, a vice president in Vastsoft's Internet platform and tools division. Other companies, including Pointcast Inc., Cupertino, Calif., have moved in this direction by selling a customized screen saver that regularly polls specified Web sites for news and information. Mr. Mcdavid and some industry executives said Vastsoft's effort should have much broader impact, because any content provider will have access to specifications allowing them to broadcast their information.
