General Magic May Fall Short Of Expectations On The Software-Industry Frontier, Firm Must Contend With Microsoft
It may be one of the most sought after stock offerings of the year, but the average investor might not want to follow General Magic Inc.’s path down the information superhighway.
General Magic develops computer software designed to make it easier for computers to work together. In part because its partners include such technology notables as AT&T Corp., Sony Corp., Motorola Inc., and Apple Computer Inc., its stock seems likely to be in big demand when it is offered to the public for the first time, probably next month.
But some analysts are starting to question whether General Magic technology can match the expectations it has created.
General Magic develops “objectoriented software platform technologies” that it believes will enable consumers to use personal computers, screen-based telephones, interactive television and public kiosks to tap into electronic services.
Its Magic Cap and Telescript products could, for example, make electronic mail and information provided by electronic publishers easily available. The software also could allow users to make purchases from catalogs, bank electronically, play interactive video games or participate in electronic chat groups.
Analysts warned that the technology, while intriguing, may not become the industry standard. Many believe Apple Computer, for instance, has the best computer operating system. But operating systems made by Microsoft Corp. are the clear business leader.
“I don’t think you can be in the software business and not bump up against Microsoft,” said Kimball Brown, an analyst at Dataquest Inc., a market-research firm in San Jose, Calif. “General Magic has a superior product, but Microsoft has superior marketing muscle and ability to attract investors.”
Microsoft plans to introduce an on-line network service in 1995 in conjunction with the release of Windows 95. Microsoft has also announced Bob, a Windows application that is intended for home PC users and is similar to Magic Cap in that it has a graphical guide that simulates rooms in a house to lead users through the functions. Microsoft’s WinPad, a technology for hand-held devices, is intended to be an extension of the desktop computer. Compaq Computer Corp., Matsushita Electrical Industrial Co., Motorola Inc. and Toshiba Corp. have announced plans to build equipment based on WinPad technology.
For investors intent on joining the crowd, one analyst suggests a short-term strategy.
Charles Ronson of Balestra Capital Management in New York said investors may want to take advantage of the hype by buying early when demand is high and selling soon before the deal cools off or investors stampede to a new technology.
Based in Sunnyvale, Calif., General Magic plans to offer 4 million shares at $13 each and hopes to raise about $47.5 million. It plans to use the proceeds for working capital and general corporate purposes.
There will be about 22.4 million shares outstanding after the offering. Existing stockholders paid an average of $4.23 a share, offering documents said.
General Magic has reported losses since it was organized in May 1990. In 1994 the company had its first revenue, $2.5 million in licensing fees, but posted a loss of $21.5 million. General Magic said it will incur “substantial losses” at least through 1996.