Since going public in late April, software developer Corel (NASDAQ:CREL) has seen a steep decline in its stock price. The IPO was priced at $16, on the low end of its $16-$18 range; it's now trading at $12.46. The big changes sweeping through Corel's core businesses may currently account for the depressed price, but they could ultimately leave the company in a stronger competitive position.

Corel reported a decent second quarter this week. Revenues increased 11% to $40 million. The company sustained a loss of $4 million, or $0.19 per share, which compares to net income of $158,000, or $0.01 per share, in the year-ago period. Second-quarter net income was hurt by a one-time charge from the retirement of debt; without it, Corel's net income rose to $8.4 million, or $0.38 per share.

The WordPerfect Office suite of productivity programs is one of two key areas of Corel's business, providing an alternative to the dominant Microsoft (NASDAQ:MSFT) Office suite. On the conference call, Corel's management admitted that it was disappointed in WordPerfect Suite's recent performance. With the release date of Microsoft's long-delayed Windows Vista operating system uncertain, many hesitant customers are delaying their purchase decisions.

What's more, WordPerfect Suite faces emerging competition. Its most ominous threat may be Google (NASDAQ:GOOG), which recently launched an online spreadsheet and purchased the online word processor Writely. These products are "lightweight" compared to Corel's, but it's reasonable to assume that Google will improve them in time, given its talented army of software engineers and massive online audience.

Corel's graphics and digital imaging products show greater promise for sustained growth. Consumers' increasing use of digital cameras, broadband access, and community photo-sharing sites -- like Yahoo!'s (NASDAQ:YHOO) Flickr -- is fueling interest in tools for digital imaging.

In fact, Corel has an opportunity for a "win-win" solution, as emerging digital photo sites struggle for ways to monetize their traffic. This week, Corel announced Alta, a new platform to deliver its digital imaging software. Its partners include CNET's (NASDAQ:CNET) Webshots, a leading photo community site. Alta gives Webshots' users a variety of tools for organizing and editing photos.

In addition, Corel's extensive global distribution infrastructure gives the company an opportunity to grow its product line through acquisitions. Its recent deal to purchase WinZip, a popular compression utility, has proved successful so far; the software has roughly half a million downloads each week.

But acquisitions and new partnerships take time to evolve, and Corel may not see greater growth from its imaging business until next year. In the meantime, the Office Suite business remains subject to disruptive competitive forces. For the immediate future, the outlook for Corel's stock remains murky and blurred.

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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.