MicroStrategy to cut 600 workers and narrow software focus

Beleaguered software vendor MicroStrategy Inc. today warned that its first-quarter financial results will likely be below expectations. It also announced plans to cut about one-third of its 1,900 workers and to focus solely on its core business intelligence applications.

The Vienna, Va.-based developer of data mining software said it will eliminate or downsize "speculative technology initiatives" that aren't directly related to business intelligence. For example, Strategy.com Inc., a subsidiary that delivers personalized streams of information to users, will be reconfigured to reduce its operating costs and head count.

That unit is also "exploring various strategic alliance opportunities," MicroStrategy said. The struggling company added that Angel.com, another operation that hosts voice storage and retrieval applications for users, "will be sold, spun off or completely restructured by the end of the third quarter."

MicroStrategy, a once high-flying vendor that has been staggering since it was forced to restate earnings for both 1998 and 1999 early last year (see story), said approximately 600 employees will be let go as part of the restructuring announced today. The cuts are expected to be mostly completed by midyear and will be accompanied by a consolidation of the company's multiple northern Virginia facilities into its headquarters site.

In addition, MicroStrategy said it now plans to put an increased emphasis on indirect sales of its software. Organizational changes and licensing, support and training programs aimed at resellers are due to be detailed at a conference that the company plans to hold next month.

MicroStrategy lost $261.3 million last year and said it expects a first-quarter deficit ranging from $25 million to $30 million, including goodwill amortization and other special charges. Revenue for the quarter is now expected to total $47 million to $51 million, compared with $50.6 million for the same period last year.

Eric Brown, MicroStrategy's president and chief financial officer, said in a statement that the cutbacks and other changes are being made in an effort to make the company profitable again "as soon as possible." But it will still likely take until year's end for even the core business intelligence operations to get out of the red, he added.

Michael Saylor, MicroStrategy's chairman and CEO, had been heavily involved in launching new ventures such as the Strategy.com subsidiary. But as part of today's announcement, Saylor said some of the company's initiatives outside the data analysis market, "while very promising, simply did not play to our core strengths."

Little more than a year ago, MicroStrategy's stock reached a price of $333 per share. But an investigation by the U.S. Securities and Exchange Commission (SEC) revealed that the the company had been overstating its revenue after going public in mid-1998, to the point where it was actually losing money while reporting a string of claimed profits.

MicroStrategy has been in a financial freefall since then. The company gave Brown expanded responsibility for contract administration and other internal functions last fall, and Saylor, another top executive and the company's former chief financial officer, agreed in December to pay a total of $11 million to settle civil accounting fraud charges filed by the SEC (see story).

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