Corel Craves Cohesion

Over the past few years, Corel (Nasdaq: CREL  ) has acquired a variety of consumer software companies, building a customer footprint of more than 100 million users in 75 countries. It's aiming to leverage that base and capitalize on the growth in digital media -- but the company hasn't found it easy.

Fiscal first-quarter revenues increased 19% to $52.6 million, but the company posted a net loss of $11.9 million, or $0.48 per share. It did post a $9.7 million pickup in revenue from its InterVideo acquisition, and a $1.9 million increase from sales of WinZip, Paint Shop Pro, and iGrafx.

Corel's WordPerfect suite suffered a $3.3 million revenue fall-off. In addition to facing competition from Microsoft's (Nasdaq: MSFT  ) Office, it's also rivaled by Google's (Nasdaq: GOOG  ) online word processor and spreadsheet applications.

In response to these threats, Corel recently launched a beta version of WordPerfect Lightning, a free word processor and note-taking program. Corel hopes that users will eventually pay for premium features such as greater storage and online collaboration, but for now, it's too early to tell.

Instead, Corel is betting that its $198.6 million deal for InterVideo will lead it to growth. It's targeting the exploding online video, HDTV, and photo-sharing markets. As these markets continue their rapid growth, users will demand more tools to develop better content.

It's true that players like Adobe (Nasdaq: ADBE  ) provide formidable competition. That's inevitable for any big business opportunity, but even so, the market should be roomy enough for several players at least.

According to the conference call, Corel's management indicated that the InterVideo integration is tracking nicely. Still, it'll take time to find synergies and ramp up growth. Investors will need to wait a couple quarters, at least, to see whether Corel's bet on digital media has begun to pay off.

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,719 out of 25,386 in CAPS. Microsoft is an Inside Value pick. The Fool has a disclosure policy.


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