Loss, Revenue Warning Send Corel Plunging

Despite the warnings, the company said the year was still profitable.
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Updated from 10:18 a.m. EST

Even the potentially lucrative

Linux

tag wasn't enough to save

Corel

(CORL)

from the stock market's wrath.

Shares of

Corel plunged Wednesday after the software maker surprised Wall Street by projecting a fourth-quarter loss and a revenue shortfall.

By midday Wednesday, Corel's stock was down 4 15/16, or 27%, to 13 3/4. (Corel closed down 5 7/16, or 29%, to 13 3/16.)

Corel said it would lose 14 cents a share in the quarter, in contrast to analysts' expectations of a 12-cent profit, according to a survey by

First Call/Thomson Financial

.

Moreover, the company expects revenues to fall 9%, to $61 million from $67.2 million in the 1998 fourth quarter.

Revenues have shrunk because of "taking substantial reserves on a number of product lines," according to Dr. Michael Cowpland, Corel's president and chief executive.

Essentially, this means that the company has had to build up reserve cash in anticipation of expected returns of a number of product lines, according to company spokesman Stuart McCarthy. The company would not say which product lines were affected.

"We became aware that something out there was out of line and we took the prudent step of reporting it timely," said McCarthy, who would offer no more details ahead of the conference call scheduled for 11 a.m. EST.

Cowpland said that while the quarter was a letdown, the year was still profitable. He predicted that growth in the Linux market and in Web-based products would put the company "in good standing for the year ahead."

Cowpland recognized the stock market has recently been enchanted with Corel's attachment to Linux.

In an effort to realign its business with the streaking operating system, the company announced Wednesday it had taken a one-third stake in

LinuxForce

, a Philadelphia-based company that offers technical service for Linux systems.

"We want to be the company with the most Linux products," said Cowpland in a conference call with investors and analysts.

Cowpland said in the conference call that he expects half of their revenues to come from Linux in the next five years.

Corel currently makes most of its money from software like

Corel WordPerfect

and

CorelDraw

based on

Microsoft's

(MSFT) - Get Report

operating system.

The company is betting heavily on the success of the new open operating system and just rolled out Wednesday its Linux operating desktops in

CompUSA

(CPU)

stores.

Corel, which is based in Ottawa, Canada, also said it expected to earn 5 cents a share this year, grossly missing Wall Street's expectations of 30 cents, according to First Call.

The past few weeks have been volatile for Corel. Its stock had climbed as high as 44 1/2 earlier this month as investors eagerly awaited its new desktop version of the Linux open-source operating system.

Then Michael O'Reilly, the highly regarded chief financial officer, left his post unexpectedly, causing uncertainty in the market.

O'Reilly said there was no correlation between his resignation and the weak quarter expectations.

Earlier this year, Corel traded as low as 2.