Investor/An insider's guide to the market: It is hard to believe that only five years ago a technology company such as Iona Technologies was trading at a share price of approximately $80 (€61.50) compared with its current level of $3.60.

Unlike many of its technology peers, Iona has survived the fallout from the bursting of the dotcom bubble, although this is little consolation to investors who bought during that euphoric period.

Iona is a software company that provides software solutions and associated services that enable companies to integrate heterogeneous computer systems. Iona's products essentially enable their customers to get more out of their existing IT platforms, which will, in most cases, have evolved over many years.

Iona was founded in 1991 and it has a customer base of 4,500. It employs 385 people, of whom 110 are in sales. Employee numbers have fallen sharply in recent years as Iona has struggled to cut costs and refocus its business. At the start of 2002 the headcount was 887.

Iona has been able to restructure and downsize because it went into the technology downturn with a strong balance sheet. The company still has net cash of $55 million, which gives it further breathing space.

While the balance sheet is not a problem, Iona has struggled to achieve sales growth and profitability.

In 2002, total revenue per employee was $45,000 compared with total expenses per employee of $50,000.

Despite the intervening restructuring, these ratios have only improved to a break-even situation. Iona recently announced results for the first quarter of 2005, which showed sales of $16.3 million and expenses of $16.2 million.

The results were in line with expectations and, in fact, reflected a better performance than Iona's competitors. Tibco, SeeBeyond and WebMethods have all issued profit warnings over the past few weeks. For the second quarter, Iona is guiding total revenues of $16-$17 million and total costs in the same range.

Iona also announced that Dr Chris Horn has stepped down as chief executive but will remain as a non-executive vice-chairman. Dr Horn is one of the founders who stepped back into the chief executive role in May 2003 in order to rescue the business.

Peter Zotto, Iona's chief operating officer, has been promoted to the position of chief executive. Mr Zotto was recruited by Dr Horn in October 2003 to spearhead the restructuring aimed at achieving sustainable profitability.

Unlike some technology companies, Iona has managed to achieve break-even and the issue now for investors is whether the company can go further and achieve sustained sales and profits growth.

A key problem for Iona is that barriers to entry into its niche market are low. Constant innovation is required to maintain its market position requiring ongoing investment in research and development (R&D).

Iona's software solutions need to be customised to the requirements of their customers and therefore rapid growth will very quickly create a requirement for additional overheads.

On the positive side, Iona has established itself as a niche player in the integration market and has an installed customer base of 4,500. Repeat business is a key component of Iona's total revenues.

However, competition is intense and includes competing offerings from the giants in the industry such as IBM and Sun Microsystems.

Part of Iona's product refocusing and cost-cutting exercise has involved altering its marketing strategy. Its previous concentration on a direct sales force has made way for a more diverse approach that also involves partnerships and resellers.

It is hoped that this can enable the company to grow revenues without adding significant costs.

Technology companies are particularly hard to value and Iona is no exception. With the company operating at break-even, assessments based on price-earnings ratios are meaningless.

At its current price Iona has a market capitalisation of $129 million and has net cash of just under $60 million, which gives some indication of the value of the shares. Clearly, if the share price is to perform, the company must become profitable in the near future.

Investor takes the view that Iona is likely to remain one of the "walking wounded" of the technology sector. The business seems strong enough to survive, but the competitive hurdles look to be too great to allow the achievement of high sales and profits growth.

The risks seem to be too high relative to the potential returns and Investor is not tempted to invest in the shares even at current low levels.