HNC to Group Web Ventures in Separate Unit

HNC Software Inc., like so many other Internet-engaged companies, wants to attach an "e" to its name.

The specialist in neural networks-advanced technology in its own right- has announced the formation of eHNC, a division designed to harmonize the San Diego company's on-line strategies across its financial, insurance, and telecommunications markets.

HNC, which sells the predictive software that is increasingly in demand for fraud detection, target marketing, and profitability analysis, wants to more systematically transfer those skills for Internet commerce.

Robert North, president and chief executive officer, said HNC expects eventually to spin off eHNC "as a separate entity."

Further details will be forthcoming when a decision is reached, he said.

Other vendors active in the banking market have made similar moves.

In March, for example, Sanchez Computer Associates Inc. formed E- Profile, an outsourcing service for emerging Internet banking units of large financial institutions.

In May, Electronic Data Systems Corp. formed an Internet software and services unit, called EDS e-Business Solutions, which it hopes will generate $2 billion of revenues this year,

Mark Wolfenberger, a Credit Suisse First Boston analyst, said Internet divisions are trendy among traditional businesses that want to bring out the "hidden value" in their organizations.

The problem is that investors find emerging opportunities such as electronic commerce difficult to quantify, he said. They tend to focus on the traditional portions of a company, using historical valuation models.

"The opportunity in front of any e-business today is almost immeasurable, whether you are HNC or three guys in a garage," Mr. Wolfenberger said.

Companies may find it difficult to exploit an opportunity such as electronic commerce while "trying to live up to" traditional business models that emphasize delivering earnings and revenues, he said.

However, if the eHNC unit were viewed as a "tracking stock," a method that lets investors value it apart from the original business, then quantifying its value would become easier, Mr. Wolfenberger said.

HNC's story has been difficult for investors to understand because of the company's multiple market areas. People looking for a telecommunications play may have little feel for financial services or retailing.

HNC issued a profit alert April 8 that caused the stock to dive 43% that day, to $15.50. It closed Friday at $32.0625, for a gain last week of 6%.

Mr. Wolfenberger rates HNC as undervalued and, therefore, a "buy."

It trades at 28 times this year's expected earnings, he said, and similar companies trade at 45.

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