[RealMoney.com] Lessons of Lernout

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From: Linda (joelinda1@home.com)
Date: Thu Nov 30 2000 - 21:13:26 PST

[Adam, remember this one? Lernout & Hauspie filed for Chapter 11
yesterday. As I recall, this Belgium company's head office has
landscaping which, from an aerial view, matches the structure of
the inner ear.



Lessons of Lernout
By Herb Greenberg
Senior Columnist
11/30/00 7:58 AM ET

Now that Lernout & Hauspie (LHSP:Nasdaq - news - boards) has filed
for Chapter 11, let's take a look at a few of the lessons of

1. Be careful with any foreign company that only files the minimum
required financials with the SEC (which is most of them), and then
in the form of reports that are hopelessly out of date. It wasn't
until Lernout filed 10-Qs and 10-Ks that the full magnitude of its
troubles became clearly evident.

2. Be careful of any company based in a country like Belgium, where
business ethics tend to be looser than they are in the U.S. (I hate
to pick on Belgium but I've asked lots of folks in Belgium about
Belgium, and the consensus is that it has its own set of rules!)

3. Be careful of any company that is the pride and joy of a fairly
small country like Belgium; it can get a cult following that is
blinded by patriotism. (If you only could see the emails I've
received, in the middle of night, from investors whose attempt at
threatening me in broken English/Flemish resembled something you'd
see on Saturday Night Live.

4. Beware of companies that rely heavily on related-party or
too-close-for-comfort transactions, no matter how well they're
disclosed. In Lernout's case there was a wide web that, in the end,
helped inflate revenue and reduce expenses.

5. Don't be fooled by companies that boast investments by well-known
companies like Intel and Microsoft. (Both held big stakes in Lernout.)

6. Don't get fooled by a rapidly rising stock price. It doesn't
necessarily reflect underlying fundamentals and sometimes means nothing
more than ... the stock is rising! (Lernout's went from $20 to $72 in a
flash, making its investors feel like geniuses.)

7. Don't be fooled by a supposedly hot new technology that is a
better story than a business. (Speech-recognition technology is likely
to be big one day, but in all likelihood it will be a low margin product
that is given away.)

8. Be leery of companies that don't take calls from journalists
(who, me?) that write critical stories. (What're they trying to hide?!?)

9. Be leery of companies run by a CEO that has a history of
overpromising and underdelivering. (Lernout's ex-CEO Gaston Bastiaens
left his former company, Quarterdeck, in similarly hobbled shape.)

10. Be leery of any company in which the analysts raise their target
price while cutting earnings estimates. (Simply doesn't make sense
unless they're trying to hype it to issue stock.)

11. Finally, don't take candy from strangers and be careful of any
company that acquires a company whose sales are plummeting
and tries to pretend they aren't. (That pretty much explains Lernout's
acquisition of Dragon Systems, which was the beginning of its end.)

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