By Sue Zeidler
LOS ANGELES, May 8 (Reuters) - Roxio Inc., a maker of CD-burning software, will be spun off from data storage firm Adaptec Inc. next week and hopes to become as well known to music fans as Elvis, or even Napster.
The little-known company is a leading provider of digital media software to personal computer giants like Dell Computer Corp., Hewlett-Packard Co. and Gateway Inc.
People use the software, which is bundled on many PCs, to record audio, video, photos and other data from the Internet onto compact discs.
Roxio's CD-burning software, Easy CD Creator for Windows and Toast for Macintosh computers, is the best-selling software of its kind. It was bundled with about 24 million CD recorders in 2000 alone, accounting for about 70 percent of the entire CD recorder market that year.
Analysts say there are expected to be 100 million CD recorders in use worldwide by the end of this year and 400 million by 2004.
Roxio is now hoping to go mainstream with a huge magazine promotion in coming weeks, according to Chris Gorog, chief executive officer of Milpitas, Calif.-based Roxio.
"We're an anomaly in Silicon Valley. We've been highly profitable since 1998 and we're growing at a 100 percent rate," said Gorog. "But nobody knows who we are."
Analysts agree that consumer awareness is one of the challenges for the company.
"It's always a challenge for a software company to make it as a standalone without the umbilical chord to the parent company, but they are in a hot space with viable markets to target," said P.J. McNealy, senior research analyst with Gartner.
ROXIO NEEDS TO GET ITS NAME OUT THERE
"Roxio has the task of transforming itself into more of a customer-facing company. They are known by high-tech early adopters, but now they're going for a more mainstream audience," McNealy said.
Roxio will be spun off to Adaptec shareholders on May 11 and begins trading on the Nasdaq stock market starting May 14, under the ticker symbol ROXI.
Gorog said Roxio's sales rose to nearly $120 million for fiscal 2001, which ended March 31, from $13.3 million in fiscal 1996. In fiscal 2001 it had a pro forma, pretax margin of over 20 percent.
About 60 percent of Roxio's business comes from its partnerships with major PC makers with the remaining 40 percent derived from retail sales. He said a slowdown in PC sales will not severely hurt the company due to increasing recordable CD drive adoption.
"Notwithstanding the PC slowdown, anybody who is buying a computer is still buying one with CD burning software," he said.
Roxio's business has grown as the blank compact disk market has exploded, and as people have increasingly created their own CDs. Blank compact disk production has soared, with about 4 billion blank CDs shipped in 2000.
Nevertheless, analysts said Roxio needs to expand into video applications to sustain its growth.
Gorog said Roxio was poised to expand in the video recording market.
"In the next four to six weeks, we'll be making a big announcement on Roxio's entry into DVD recording," said Gorog.
Roxio's recording software is included in Microsoft's Windows Media Player 7 and RealNetworks' RealJukebox, software players which let users play music or view videos on a PC.
Gorog said popular song-swap service Napster, which is currently struggling to comply with a crippling court order, has been a huge driver for Roxio's business this past year.
Analysts said Roxio would be best served by aligning itself with major recording companies as usage on Napster dwindles under the weight of court restrictions.
Gorog said Roxio is also the "CD burning solution" for MusicNet, a music subscription joint venture between RealNetworks Inc.and three major music companies, Warner Music