Can Be Inc.’s Stock Make Comeback?
Can Be Inc.’s Stock Make Comeback?
By Hal Plotkin
Silicon Valley Correspondent
Although financial analysts have abandoned operating system maker Be Inc.’s {BEOS) flagging stock, several leading industry analysts, along with company chairman, president, chief executive officer and founder Jean-Louis Gassée, say it is way too soon to count out the only multimedia-oriented rival to Linux and Windows.
Menlo Park, Calif.-based Be was founded in 1990 by Gassée, a former top executive at Apple Computer Inc. {AAPL}. The company was originally formed around a desktop computer operating system that was designed to augment Microsoft Corp.’s {MSFT} Windows and Apple’s Mac OS, particularly for audio- and video-intensive applications that aren’t easily handled by either system.
Stymied on the desktop for years by Microsoft’s aggressive marketing tactics, Be has more recently refocused its sights on penetrating the emerging OS market for handheld wireless devices, personal digital assistants and other portable information appliances. To generate more interest, Be recently began giving away its desktop OS over the Internet.
The company also recently released part of the source code for its OS, a move that allows other developers to make changes or improvements or customize it for their own particular uses. Public source code has been the key reason for the rise of the increasingly popular Linux OS.
Be’s stock hit the skids last December when anticipated announcements of new products containing the Be OS didn’t materialize as had been expected. The company was also hurt by news that it doesn’t expect to be profitable soon and its announced plans to seek additional lines of working capital before it runs out of cash in about six quarters.
Post-IPO chart for BEOS
Last August, Charles H. Finnie, then an analyst at Volpe Brown Whelan & Co., set a 12-month price target of 16 for the stock, which was trading at about 6 a share at the time. Finnie’s firm had helped underwrite Be’s initial public offering earlier last summer.
“We believe that Be will sign a major PC [original equipment manufacturer] during the second half of 1999,” Finnie wrote in his optimistic report.
Be has recently announced several product development initiatives with a handful of OEMs, most notably Compaq Computer Corp. {CPQ}, but no actual products or firm announcements of product introduction timelines have materialized as of yet.
In the interim, however, the rival Linux OS has gained momentum as an alternative to Windows in handheld devices, particularly those containing the new Crusoe chip produced by Santa Clara, Calif.-based Transmeta Corp., which is optimized to run on very low power around a mobile version of the free Linux operating system.
Several personal-computer manufacturers, including Gateway Inc. {GTW}, have recently trumpeted their Linux-oriented handheld device product-development efforts, much to the chagrin of Be investors.
Meanwhile, analyst Finnie has since left Volpe Brown to become a venture capitalist in Silicon Valley, leaving no other financial analysts talking up Be’s sagging stock.
Gassée, however, appears to be taking the setbacks in stride and professes strong confidence in his firm’s technology and prospects.
In an exclusive interview with CNBC.com, Gassée conceded that product-development efforts have gone slower than he would have liked. But he says plans are on track to bring at least one Be-powered handheld device to market shortly after Labor Day.
“During a pregnancy, time goes by in a certain way,” Gassée says. “But then after the baby is born you wonder how it could be graduating college so soon.”
Gassée says that his firm’s collaboration with Compaq Computer is “going very well.”
“I’m more optimistic than ever about our prospects,” he adds. “We’re gaining a lot of experience, even if that experience is not yet visible.”
Gassée says worries over the possible dominance of Linux in the mobile markets are overblown. Linux backers say that that manufacturers will prefer to go with one or another version of the free Linux OS rather than pay royalties to use a proprietary OS from a company such as Be,.
“Linux is the culmination of 30 years of work in the Unix community and is successful in server appliances,” Gassée says.
When it comes to handheld devices, however, Gassée says the free Linux OS isn’t all it is cracked up to be.
“The manufacturers who use Linux still have to pay royalties for [Sun Microsystems Inc.’s {SUNW} Java, for RealNetworks {RNWK} [streaming media player], and for an MP3 encoder. It’s not free,” he says.
Gassée maintains that the Be OS, which contains each of those features and others, is price-competitive when all costs are factored in.
Several leading industry analysts say that while marketing challenges remain, Be does have some technical advantages.
The industry analysts uniformly heap praise, for example, on Be’s OS, saying it does a much better job handling multimedia content than current versions of both of its better-known OS rivals. That capability is likely to become more critical as higher-bandwidth wireless connections enable more audio- and video-intensive mobile applications.
“Be has an excellent operating system for reading and playback of audio and video,” says Seamus McAteer, an analyst at Jupiter Communications in San Francisco. “All they really need is one really strong design win by a company that has a compelling package, and there is upside there.”
Stacey Quandt, an analyst at the Giga Information Group, based in Santa Clara, Calif., agrees.
“Although Linux appears to be the trend du jour for appliances, at least one company has decided to go with Be rather than Linux,” Quandt says. “It’s not too late for Be, and the open-sourcing of their OS is certainly an important step in attracting developers and OEMs.”
Dan Kusnetzky, vice president of system software research at International Data Corp., based in Framingham, Mass., is less optimistic about Be.
“Be has great technology but no applications,” Kusnetzky says. “They’ve been creating great software and then throwing it over the wall. But when they did, no one has picked it up.”
Kusnetzky is reluctant to predict the future. But says he sees no indications Be will be part of it.
“Every major software maker is going after the same market,” Kusnetzky says. “Whether it’s Microsoft or Red Hat {RHAT} or smaller companies such as [still-private] Lineo Inc., they are all building in the capacity for multimedia. All the other OS companies will be ready, and they already have established relationships with the vendors, who don’t know or care about Be.”
“I think it has everything to do with marketing and nothing to do with technology,” Kusnetzky adds.
Gassée, however, stands by his guns. He is unwilling to make any firm promises about his company’s future performance, due to regulatory constraints regarding “forward-looking” statements. But he does say that the emerging mobile-wireless Internet will create substantial new business opportunities.
“Providing humans with the capability to do what they want where they want will have a profound impact,” Gassée says. “I would never dismiss public perceptions. But I’m extremely gratified with how we are progressing. It would be nice, though, to see a clearer perception in the public.”
Gassée says he hasn’t finalized plans to seek the additional capital his firm will need in about six quarters, given Be’s current burn rate.
“There’s no urgency there,” Gassée says. “We have been approached by people and are reviewing our options.”
In addition, Gassée says he hasn’t yet decided whether Be will sue Microsoft for damages as a result of the federal court findings in the current antitrust case. Legal analysts say Be could have one of the strongest civil cases against Microsoft if the findings against the company are upheld, since those findings provide powerful legal evidence of potentially significant financial damages.
“Our lawyers say we have plenty of time to make that decision,” Gassée says. “We feel we should concentrate on our business right now and see how the appeals process turns out.”
On April 19, Be reported a first-quarter loss of $6 million on revenue of $254,000, as compared with a loss of $5.8 million on revenue of $309,000 for the same period a year earlier.
The company attributes the decline in revenue, in part, to its decision to make the Be desktop OS freely available over the Internet.
Be had just under $27 million in cash and cash equivalents on hand, according to its most-recent quarterly report.
