Software developer Autodesk ( ADSK) was down Friday afternoon, on the heels of Thursday night's weak earnings report and news that the SARS outbreak has hamstrung the company's operations in China. In recent trading, shares were off 63 cents, or 4.1%, at $14.91. Autodesk closed at $15.54 cents on Thursday and began losing ground in after-hours trading. The losses would have been greater, but analysts said that traders were expecting the news and had already priced it into the stock. In the first fiscal quarter ended April 30, net income for the maker of design and special effects software was $7.5 million, or 7 cents per share, compared with $17.6 million, or 15 cents per diluted share, in the year-earlier period, according to generally accepted accounting principles. Revenue was $211 million, down 8% on the year. However, revenue grew by 8% sequentially, and EPS rose a penny compared with the fourth quarter. And the results were better than expected by analysts, who had projected income of 5 cents on revenue of $205.9 million. About $4.9 million of the $5.8 million upside was due to positive currency impact. But looking to the second quarter, the company expects revenue to range from $207 million to $212 million, well below expectations. Net income will range from 7 cents to 10 cents a share. Analysts polled by Thomson First Call had expected the company to earn a net profit of 13 cents in the July quarter on sales of $217.6 million. During a call with analysts, CEO Carol Bartz said the SARS outbreak will cost the company as much as $7 million in the quarter, a number factored into the guidance. She said Autodesk had stopped rollout events and client meetings in China because of the disease.
Autodesk is best known for AutoCAD, a longtime staple of engineering workstations. AutoCAD and its cheaper version, AutoCAD LT, last year accounted for just under 50% of the company's revenue. Four years ago, the company purchased special effects software developer Discreet, and products derived from that acquisition now account for about 16% of the company's revenue. Autodesk software is now popular in Hollywood and has been used on a number of films that won Academy Awards for special effects, including the first two installations of Lord of the Rings. Last fiscal year was not a good one for the company; revenue declined 14% and income was off by 65%. In the last quarter of the fiscal year 2003, which ended Jan. 31, revenue was off by 23% on the year and income dropped to 6 cents a share from 19 cents. Also hurting last year was the company's Discreet division, which lost money for eight straight quarters due to the collapse of the advertising market, Bartz said during a conference call. The division returned to profitability in the first quarter, she said. Some of the company's top-line problems in fiscal 2003 were likely caused by an aging product line. However, Autodesk announced 15 new products earlier this year, and all were shipped by the end of the April quarter. "There is no doubt that people are impressed with the 2004 products, but there is also no doubt that the environment is tough," wrote analyst Gene Munster, who follows the company for US Bancorp Piper Jaffray, which has a banking relationship with Autodesk. Munster said his recent channel checks don't show signs of a last-minute surge in sales and notes that customers seem to have little sense of urgency to purchase. Munster wrote that "significant growth (in the July quarter) could be difficult until Autodesk is able to implement promotions that instill a sense of urgency into customers and the overall environment improves." Still, Munster believes the stock has upside because of the company's leading market position in design software. He set a target price of $20, saying he believes weak comps for the January and October quarter will lead to appreciation.