Macromedia's flagship fails to fire

In reporting results on Wednesday for its fiscal second quarter, Macromedia announced it now expects revenue growth of 5 percent to 10 percent for its current fiscal year, which ends on 31 March. The company previously had forecast growth of 10 percent to 20 percent. The company also forecast third-quarter revenue of $85m (£50m) to $95m, below analyst forecasts for an average of $99m, as compiled by researcher First Call.

Macromedia chief executive Rob Burgess said initial sales have been considerably slower than expected for Studio MX 2004, the package that combines new versions of major Macromedia Web design and development tools, such as Flash and Dreamweaver. "The uptake rate for MX 2004 has been a lot slower in the first few weeks than we expected and certainly than we've experienced in the past," Burgess said during a conference call with financial analysts late on Wednesday.

Burgess attributed the slow start to a cautious overall information-technology spending environment and Macromedia-specific factors, such as the decision not to offer a free trial version before the product's release as the company had done in the past. Burgess also cited success in moving customers to subscription programs that create more deferred revenue. "That's actually good for the longer term," he said.

The news led to several analyst downgrades and sent Macromedia shares skidding. The company's stock was down $9.43, or 34.8 percent, to $17.70 in midday trading on Thursday.

Investment bank Adams Harkness & Hill cut its rating on Macromedia from "strong buy" to "buy," with analyst Steve Frankel criticising the company's decision not to offer a free demo version of Studio MX 2004 before release. "The lack of prerelease evaluation copies was in retrospect a management misstep and sets the upgrade cycle back by 30 days," he wrote in a research note. Investment bank Robert W Baird also cut its rating on Macromedia, from "outperform" to "neutral."

Macromedia reported net income of $9.8m, or 14 cents a share, for its second quarter, which ended on 30 September. That compares with a loss of $11.7m, or 19 cents a share, in the same period a year ago. Sales were $89.9m, compared with $85.9m a year ago.

Macromedia also announced plans to acquire eHelp, a privately held software maker specialising in tools for creating technical tutorials and other training presentations. Macromedia said it expects eHelp's RoboHelp and RoboDemo products to integrate well with existing Macromedia products such as Breeze, the company's new tool for creating and delivering online training material. The cash-and-stock transaction is valued at about $65m.