Industry shaken by FileNet's falling earnings

FileNet (Costa Mesa, CA,

http://www.filenet.com) will report a net loss of approximately $9.0 million, or $.60 per share, for the first quarter ended March 31, 1997. FileNet expects to report first quarter revenue of approximately $47 million. That compares with Q1 '96 revenue of $66.7 million and a net loss of $11.8 million, or $.79 per share, which included one-time charges of $16 million.

"New orders were unexpectedly weak for the quarter," stated Ted Smith, president and CEO. "The weakness was experienced in both our domestic and international markets. In particular, several large orders did not come through."

Wall Street reacted quickly to the news--FileNet stock dropped an additional five points, following a slide of over 40 points that began in early 1996. FileNet reacted with equal speed to cut costs. The company has confirmed its plans to consolidate its imaging product development groups. As a result, FileNet is closing the former Watermark facility in Burlington, MA, transferring those jobs to its Costa Mesa headquarters.

"Expectation setting is everything on Wall Street," observed Carl Frappaolo, president of Delphi Consulting (Boston) and one of the first analysts to react to FileNet's loss. He added: "After watching their stock take a hit in the last quarter for not meeting earning exceptions, FileNet failed to take a preemptive approach by setting truly conservative short term expectations for financial analysts who follow the stock. Today the company is paying the price in its tumbling share value."

However, Frappaolo sees FileNet's market position as much more stable than the share loss implies, attributing the drop to the nervousness of Wall Street.