By Steven Schnoll February 7, 2005 -- EFI (NASDAQ: EFII) announced disappointing fourth quarter revenues of $81.2 million as compared to $107.9 million in the comparable quarter in 2003. Pro forma net income was $3.1 million or $0.06 per diluted share for the fourth quarter. For the year ending, pro forma net income was $36.9 million or $0.62 per diluted share compared to 2003 numbers of $43.9 million and $0.76 per diluted share. CEO, Guy Gecht said, “Despite a challenging quarter, we are pleased that we achieved strong cash flow from operations and delivered our sixteenth consecutive quarter of gross margin improvements.” Respective of this comment was the increase in total company assets from $1.01 billion in 2003 to $1.02 billion in 2004 Topics of this summary: Regional Performance Segment Performance Raine's Radar Guidance Q & A Regional Performance Revenues in the Americas decreased to $43.8 million showing a drop of 25%. Most of that decline was experienced in the server category. Revenues in Europe were $22.2 million, a 12% decrease. Japan revenues were $4 million. The bright spot was in the rest of the Asia/Pacific rim where revenues moved upward. Segment Performance Strong professional software sales offset to some extent weak server sales Weak server sales were attributed to lack of new engine introductions in second half of 2004. Should see improvement in 2005 with several new announcements anticipated. Professional Printing Applications continues to be an important part of the business and is showing good growth EFI will be the front end server for new Xerox 7750, new Canon ImageRunner, Ricoh and Ikon products They noted that 10 out of 12 of the Best Managed Printing companies use EFI software Guidance EFI anticipates a first quarter proforma earnings per share of $0.06 and a GAAP loss of $0.02. The company expects the recent reduction in head count in January 2005 to see some earnings impact in the second or third quarters. Company also anticipates some modest server growth in the first quarter of 2005. Raine Analyst Take: EFI was soaring with the eagles over the past few years, but alas every bird must land at some time and take a breather, that is what EFI is experiencing. With not a lot of good news to report the company kept its call short. They are taking stock of the rapidly changing graphics marketplace and hopefully making some 2005 adjustments to meet new market demands. The recently announced acquisition of Creo by Kodak should have some profound ramifications for EFI particularly with the Xerox relationship. It is too early to see how this will play out but could prove very profitable in the long run. While the software side of the business continues to improve the integration of the print MIS systems and digital workflow platforms must continue unimpeded if this sector will prevail. Guy and his team run a tight ship and the head count reduction was long overdue after the printCafe acquisition. Q & A Foresee many sequential improvements for upcoming year more in 2 nd half than 1 st half of 2005. No products were pushed from 1 st half of 2004 to 2 nd half. Should see some embedded products in 1 st half of year and standalone products in 2 nd half. No shortage of companies seeking out Fiery offerings. Company in great position to be selective in choosing partners. Strong demand for EFI products. Growth in low end color market tough to predict, but short term seems to have solid demand. Lowest cost fiery is $4-5 thousand but can go lower if market requires. Company looking for new acquisitions in the $50 million range. Key ingredient proven market share. R&D costs are being cut significantly. Profitability of Fiery is greater than anything else in company. Keeping inventory lean with OEM partners. Total employment reduction in Q1 of 2005 was 5%. Stock repurchase program is being postponed. EFI wants to use cash for acquisitions.