Software Notebook: Ellison Still Lugging Network-Computer Torch

SAN FRANCISCO -- Nothing dies easy with Oracle (ORCL) CEO Larry Ellison.

Four years ago, Ellison preached that the network computer -- a cheap, slim desktop with little memory -- would kill the PC (and, by extension, Microsoft's (MSFT) control of the software market). He put his money where his mouth was, forming a division within Oracle to work on developing the network computer. That outfit was incorporated in April 1996 as Network Computer Inc., or NCI.

The network computer never really took off because PC prices dropped so quickly that people had no reason to switch. Still, NCI plodded on, changing its focus to software that brings the Internet to set-top boxes and other information appliances, and changing its name to Liberate Technologies (LBRT:Nasdaq).

Several years on, Microsoft is bigger than ever and Ellison's dream has yielded little more than red ink. Liberate reported a net loss of $31.1 million for the fiscal year ended May 31 and now shows an accumulated deficit of $149.7 million, according to its prospectus. "Since our inception, we have not had a profitable quarter and we may never achieve or sustain profitability," the prospectus reads.

Liberate went public Wednesday at 16. Its shares rose as high as 22 9/16 the same day and closed Thursday at 19 1/16. Coincidentally or not, on the same day that Liberate sold 6.25 million shares to the public, Ellison told analysts Oracle was at it again. He said Oracle was working on starting a company to develop a -- guess what? Cheap network computer.

"You would have thought Larry learned his lesson about wading into the hardware arena," says AMR Research analyst Bruce Richardson. Still, while an Oracle desktop computer may never emerge, the latest attempt isn't likely to divert resources from Oracle's core business of application and database software, Richardson says.

And the idea makes more sense now than it ever has. "This is the first time in years ... all parts of the company are focused on one thing: the Internet," says Richardson, who has been tracking Oracle for the past decade. "There isn't the warring of the tribes that there has been in the past. So this is a logical extension."

Besides, Richardson says, Oracle CFO Jeff Henley "probably encourages Larry's wacky ideas because it keeps him distracted and away from interfering with revenue and earnings."

So maybe it's not such an expensive quest after all. Oracle closed up 3/8, or 1%, at 38 1/16 Thursday even as the Nasdaq Composite Index dropped 2.4%.

Lifting the Baan

Netherlands-based Baan (BAANF) has probably been the most troubled of the top enterprise-software companies, but some signs of relief might be emerging.

A day after Baan reported another loss earlier this week, Salomon Smith Barney analyst Neil Herman upgraded the stock to neutral from underperform, and Enskilda Securities analyst Robrecht Wouters raised his rating to outperform from underperform. Baan Wednesday reported a second-quarter loss of $9.2 million, or 4 cents a share, in line with the First Call consensus forecast. A year ago, the company showed a profit of $17.1 million, or 8 cents a share.

Herman and Wouters saw Baan's $7 million in cash flow from operations as a positive sign. "This is the first time that we can recall that the company was actually operating cash-flow positive," wrote Herman, who had held his underperform rating since April 1998.

Since April 1998, Baan's shares have lost 76% of their value amid accounting woes and a sharp slowdown in sales of software that helps automate back-office tasks. On Thursday, the stock fell 1/2 to 13 5/16.

>To order reprints of this article, click here: Reprints