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Title: Y2K flop hurts shares of Timberline Software Demand for the Beaverton company's upgrades falls short and results in a 32 percent decline in its stock price

Tuesday, March 28, 2000

By Steve Woodward of The Oregonian staff

Y2K didn't bring corporate America to its knees.

That was good news for most companies. But for Beaverton's Timberline Software, the calm that greeted the new year set off a cascade of consequences that resulted Monday in a 32 percent plunge in its stock price.

Timberline Software said it had expected "significant, continuing demand" this quarter from customers who needed software upgrades to fend off the Year 2000 computer problem.

But the demand didn't materialize. And that left Timberline, a maker of construction and property management software, with sales well below expectations.

When the company revealed Monday that its earnings would be significantly below estimates by Wall Street analysts, the stock dived $3.938 a share, closing at $8.125. That's the lowest closing price since September 1998.

"Software orders did not ramp up as we had anticipated during the quarter," said Curtis Peltz, president and chief executive officer.

Y2K actually has been good for Timberline in recent years, contributing as much as 20 percent of its growth, according to Lantz Stringham, a Red Chip Review analyst who issued a report March 1.

For its first-quarter estimates, Timberline said it relied on a general consensus among market research firms and industry experts that construction companies would continue to need software upgrades well into 2000 - a consensus that didn't pan out.

Moreover, Timberline said its stream of sales leads slowed at the end of last year, as construction companies focused on their internal Y2K preparations. The company said both leads and sales in the pipeline are improving but still lag behind last year's first quarter.

Two other factors played into Timberline's shortfall in software license revenue, the company said.

First, it was late getting out new products targeted at specialty contractors, the primary market for future growth. Its purchase order/inventory application was released last month, and its service billing application won't be out until after June.

Second, the company got its biggest single software order in history -- estimating software sold to an unnamed national construction company -- during last year's first quarter. That quarter's one-time record results are skewing comparisons with the current quarter.

Timberline said it expects first-quarter earnings to be about 6 to 8 cents per diluted share. Portland-based Red Chip Review, one of the few investment research firms that follows Timberline's stock, had estimated first-quarter earnings at 18 cents a share, rising steadily to 29 cents a share by the fourth quarter.

Red Chip's Stringham said he would update his analysis today. Timberline's first quarter ends Friday.

Timberline's Peltz said company executives did not think they were losing business to competitors, noting that "activity level within our distribution channel is very good."

In recent weeks, Timberline has announced a string of e-commerce deals, adding Monday that it soon will announce its business-to-business Internet strategy and new software releases.

Last week, Timberline said it will weave its estimating and accounting software into Palo Alto, Calif.-based Cephren's online services for the construction industry. Last month, Timberline announced a partnership that will allow its 115,000 construction software users to use Redwood City, Calif.-based BuildPoint.com's Web site to request bids on construction materials.

http://www.oregonlive.com/business/00/03/bz032802.html

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-- (Dee360Degree@aol.com), March 29, 2000