Legato Revises Quarterly Earnings Again

SAN FRANCISCO (04/07/2000) - For the second time in three months, Legato Systems Inc. is restating its quarterly earnings, damaging its image and stock price in the process. And this time, the damage is overshadowing its entry into the Linux market.

Last week, the Mountain View, California based company said it will delay filing its 10-K, which reports sales and other financial information for last year, because it discovered that "a small number" of its salespeople entered into side agreements worth approximately $7 million of Legato's $71.3 million fourth-quarter sales.

Combined with its previous financial restatement in January, last week's development caused the company's stock price to collapse from more than $80 per share in December to $15 last week, which nears its 52-week low.

This hurts its credibility significantly," and there are questions about how Legato recognizes its revenue, said Mark Kelleher, an analyst at Boston-based SunTrust Equitable Securities.

The departure of the company's executive vice president for worldwide sales, David Malmstedt, will help restore credibility, Kelleher said.

The scandal provided the subtext for a product introduction here, where Legato announced its new eCluster high availability product for Linux as well as its wanCluster offering for site-to-site fail-over.

Carolyn DiCenzo, chief analyst at Dataquest, a San Jose-based division of Gartner Group Inc., said it's ironic that Legato found itself in its current predicament.

"This is a very conservative company that needs to get much more aggressive in promoting its technology and, it seems, less aggressive on its sales reporting side," she said.

Legato's near-bottom stock price and solid products have also made it the target of widespread takeover rumors. Company executives, industry analysts and third-party suppliers at the event here all speculated on possible buyers.

Companies rumored to be hungry for Legato include: EMC Corp. in Hopkinton, Mass.; BMC Software Inc. in Houston; and Veritas Software Corp., also in Mountain View.

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