PeopleSoft revenue rises; company will absorb spin-off

Enterprise software developer PeopleSoft Inc. finished its fourth quarter of 2001 with its highest software licensing revenue to date, at US$174 million, and a 6 percent increase in total revenue over the year-earlier quarter. The company also announced it will acquire its much-scrutinized development spin-off, Momentum Business Applications Inc.

PeopleSoft created Momentum in 1998, through an expensive one-time investment recorded on its books as a special charge, and spun the company off to its shareholders. PeopleSoft outsources some of its research and development (R&D) to Momentum, which has just one permanent employee; Momentum then hires PeopleSoft programmers to carry out its projects, which it sells exclusively to PeopleSoft in return for royalties. The arrangement isn't unique and has been cleared by the U.S. Securities and Exchange Commission, but since the collapse of energy trading company Enron Corp., it has attracted renewed scrutiny and criticism from analysts.

PeopleSoft will pay $90 million to absorb Momentum, a move that could also push up its R&D costs and affect earnings. The decision to acquire Momentum came as PeopleSoft hit "a crossroads" in its relationship with the venture, at which it had to choose between acquiring Momentum and continuing to pay royalties, PeopleSoft Chief Executive Officer Craig Conway said in a conference call with analysts following the company's financial report release. Conway announced the Momentum acquisition during the call.

The turbulent wake of Enron had nothing to do with PeopleSoft's decision to do away with Momentum, PeopleSoft executive Phil Wilmington said in an interview after the company's conference call. The move comes within the time frame initially established for PeopleSoft to exercise an option to acquire the venture, he said. Wilmington is PeopleSoft's executive vice president of North American operations and global alliances.

PeopleSoft anticipates that the current economic slump will continue though the first half of 2002, with only a mild recovery during the last six months of the year, Conway said during the call with analysts. He said he does not see a turnaround on the horizon: "I do see hope, I do see optimism, I see anticipation, but I don't see companies today so confident of an economic recovery that they become more aggressive in their actual spending yet."

Geographically, PeopleSoft saw "very strong" spending in North America, "strong" spending in the Asia-Pacific region and a "weak" market in Latin America, Conway said. PeopleSoft expects those trends to continue during 2002.

PeopleSoft's total revenue for its fourth quarter, ended Dec. 31, was $528.16 million, up from $497.78 million in the fourth quarter of 2000. For its 2001 full-year operations, revenue was $2.07 billion, up 19.4 percent from 2000's $1.74 billion total.

Net income for the fourth quarter was $57.77 million, with $0.18 earnings per share. The consensus forecast of analysts polled by Thomson Financial/First Call was for $0.16 earnings per share. Net income for 2001 was $192 million.

PeopleSoft executives repeatedly emphasized the company's balanced product portfolio during the conference call, and said no one product line dramatically outsold others. After a weak third quarter, partly attributable to post-Sept. 11 effects, PeopleSoft's sales in the financial services sector rebounded, Conway said.

In advance of the earnings report, shares of PeopleSoft ended trading Thursday on the Nasdaq exchange up 5.4 percent, at $38.43. In after-hours trading, shares dropped 3.7 percent, to $35.10.

PeopleSoft, located in Pleasanton, California, can be reached by phone at +1-925-694-3000 or online at http://www.peoplesoft.com/.

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