Local software firms escape brunt of industry tumult: price declines continue as observers look for bottom.

Price declines continue as observers look for bottom

Computer software developers in Los Angeles County have so far escaped the precipitous decline in retail prices that has the industry whirling in uncertainty about just how low prices, and revenue, may drop.

So far, the price was has been confined to the major players, whose stock prices have fallen along with the prices of their software products.

But because just about all of the local software makers are small players with specialized products, they have largely been unaffected by the price cuts by industry leaders like Scotts Valley, Calif.-based Borland International Inc.

According to industry representatives, the one local company that may be vulnerable to the effects of a price war is Quarterdeck Office Systems Inc., which is based in Santa Monica and whose stock last week was trading near its 52-week low of about $2.50. Quarterdeck's stock, which is traded on the over the counter market, had a 52-week high of almost $7.50 per share.

The industry experts said Quarterdeck may be affected by the price war because, like the other developers getting hit, it makes software with broad business applications and per-unit retail prices of $300 or $400.

Ron Hammond, chief financial officer of Quarterdeck, said the price war "has not affected us as significantly as others because we have historically had low prices. ... One of our most popular products retails for $99.95."

Quarterdeck, whose sales and net earnings have been falling, makes computer software for business and professional uses that include information storage and communication functions.

"Clearly, these price reductions are something we are keeping our eye on and it could impact some of our products as we go forward," said Hammond.

For the three months ended June 30, Quarterdeck's sales declined to $11.2 million from $12.2 million a year earlier, and its net earnings fell to $398,000 from $954,000. The company blames a drop in international sales. Last year it had worldwide sales of almost $52 million.

The price war, which many in the industry say was started recently by Borland when it cut retail prices of its software, has mainly affected business programs with prices that range from $300 to $800 per unit. The retail prices for software for word processing, accounting and information storage functions have in many cases been cut in half and in some instances by 75 percent.

Among the major makers of business software are Borland, Microsoft Corp., Lotus Development Corp., Computer Associates International and Oracle Corp.

In addition to Quarterdeck, the other large software companies with headquarters in the county are Santa Monica-based Candle Corp., with 1992 sales of $196 million, and Davidson & Associates in Torrance with $40 million in sales last year.

Candle makes business software that retails for tens of thousands of dollars and Davidson designs computer programs for educational purposes. The two companies have not been affected by the price war because Candle's software is so expensive and Davidson's educational programs are geared to consumers rather than businsses.

Ken Wasch, executive director of the Washington, D.C.-based Software Publishers Association, described the price war as "cut throat" and an attempt by the major players to gain market share.

But Wasch agreed with the clear majority of local software industry representatives that the price was not affecting developers in Los Angeles County.

Aside from Quarterdeck, Candle and Davidson, the other 20 or so software companies in the county have annual revenues under $10 million and are privately held.

Typical of those companies is CompuLink Management Center Inc. in Torrance.

Chris Wacker, CompuLink's vice president for new programs, said the company has not lowered prices on its software that scans paper and transmits the information into a computer system. The software retails for $895 a unit.

"The small companies like ours all specialize in software with limited uses and are not really competing against the big players that are making spread sheets or word processing," he said. Spread sheets is the term applied to accounting software and word processing is software that allows users to publish documents.

"There is always going to be room for cutting-edge software products but what's happening now is the industry is reaching another level with several big players offering broad-based business products," said Wacker.

There are those that think the price war could eventually affect smaller software developers like those that are based in Los Angeles County.

Mark Brownstein, a North Hills-based industry consultant and a freelance journalist who covers the software business, said the price war could end up hurting the small companies.

He said the lower prices could result in buyers demanding reduced prices for all software products. "People could just get used to paying $99 and wouldn't pay anything higher," he said.

Brownstein also said there is a danger that a price war by the big players would force smaller companies out of business because they could not compete against the big software developers that deal in volume and offer lower prices.