Unibrain’s hard landing showcases emptiness of ‘tech miracle’ promises

Information technology company Unibrain, a subsidiary of software and telecommunications equipment group Intracom, appears to be losing its bet. Just a few months after its listing on NEHA, the market for IT ventures, it has had to revise its forecasts downward. Results also showed that it is now more a commercial enterprise rather than a manufacturer. The desire of Giorgos Zahopoulos and Marios-Erikos Tzavaras to promote Unibrain’s designs and products worldwide appeared to have hit a stumbling block in the shape of the exceptionally competitive and highly demanding IT industry as well as the adverse global economic environment. Unibrain’s hasty flotation on NEHA, its high valuation during its debut, and over-optimistic expectations on its growth followed by the subsequent disappointments are strong criticisms of the effectiveness of bourse authorities. Strangely, Unibrain presented explosive profits and revenues just before its market listing. This was followed by a disappointing fall just after. In 1999 its profits went up by 930 percent, while in the following year they rose by 560 percent. The recession in the global IT industry in 2000 did not affect Unibrain, while today it has been blamed as the reason why forecasts did not materialize. Unibrain was set up in 1990 by Zahopoulos, Tzavaras and Karamolengos with stakes of 35, 35 and 30 percent respectively. In 1996 they decided to focus on producing firewire technology products, a technology which could transfer data by connecting computers to peripheral equipment via high-speed cables. In 1999, Unibrain became a part of Intracom, with LFG Finance (Hellas), which is controlled by Athens Capital Holdings, taking a 25-percent stake as well. Intracom’s 40-percent stake cost it 3.64 million euros and Unibrain was valued at 9.09 million euros. Sales of personal computers in the US in 2000 fell, while signs showed the recession in the IT sector would continue. Despite this, Unibrain achieved an impressive increase in profits in 2000, vital to its market flotation. The company also decided to set up a subsidiary in San Ramon in the US in March 2000, expecting it to be the spearhead for its expansion into new markets. Despite the collapse of the Nasdaq market during 2000-2001 and the closure of thousands of IT companies, Unibrain and underwriters Alpha Finance and Omega Securities presented the company as a Greek technological wonder. The deception of investors was evident as the picture presented did not correspond to reality. Proof of this is the company’s contradiction of its forecasts. In March 2001, Unibrain and its underwriters predicted turnover of 7.2 million euros and profits of 1.77 million euros, while forecasts for 2002 pointed to profits of 3.35 million euros and revenues of 11 million euros. On a consolidated basis, revenues for 2001 were predicted at 8.2 million euros and profits at 1.18 million euros. Revenues for 2002 were estimated at 12.4 million euros and profits at 3.22 million euros. Unibrain’s IPO in April 2001 was 7.7 times oversubscribed. Its debut price was set at 6.5 euros, double the price paid by Intracom just a couple of months before. Based on this, its valuation was 24.7 million euros and its price/earnings ratio based on 1999 profits set at 77.7. A few months later, it published its results for 2001, shocking investors and even market professionals. Company profits were 43-percent down from forecasts and turnover 12.4-percent lower. Consolidated revenues were 21.3-percent less and profits a whopping 85.8-percent down. The company’s information brochure was approved by the Capital Market Commission and bourse authorities. It is legitimate to criticize their role and their effectiveness. The commission had asked the company for explanations after its results diverged drastically from its forecasts. Unibrain blamed the bad international market for the situation. It expects a marginal profit increase for 2002 and appeared to be abandoning its loss-making US subsidiary with its new investment program.