" ... we see every reason for Comverse to become an Israeli Ericsson."
globes.co.il
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High Tech Features
Who Said Israel Has No Nokia?
By Eliav Alalof
At the end of August 1997, then Comverse general manager Carmel Vernia said, "Our dream is to be like Ericsson - a company from a small country, Sweden, that conquered the global market, and we're in a market in which it could happen." At the time, the company was not the sort that made media headlines. Comverse, which was already a company showing good performance ($280 million sales and $40 million net profit), was far from being the well-oiled machine it is today.
From today's perspective, the timing of that statement could not have been better. Comverse was then swallowing its greatest competitor, Boston Technologies, and acquired an enormous asset, which apart from the likes of Check Point and Amdocs that rank behind it, represents the dream of every Israeli high tech manager - a powerful marketing presence in the US. Comverse thus became the market leader in multimedia telecommunications applications overnight.
Before we continue, let us take a glance at the company's history and activities so far. It started some time in 1983, when Kobi Alexander, 48, currently Comverse chairman, founded a company called Efrat together with his brother-in-law Boaz Meshouli, and his father-in-law Prof. Yehiam Yemini. In contrast to the regular image of Israeli high tech entrepreneurs, Alexander did not receive his training in the army Intelligence or Signal corps, but at a medium size US investment house, where he served as a financial consultant. The company started developing Trilogue-Infinity, a voice mail system.
A year later, the threesome set up Comverse, which later became Efrat's parent company, due to the difficulties in raising capital for a company connected to Israel. At the time, Israeli high tech did not have a particularly good name, which is in sharp contrast to the situation now.
In 1986, after starting to sell the Trilogue, mostly to private companies interested in voice mail systems, Comverse held an IPO on Wall Street, raising $6.5 million in exchange for a third of its shares. Investors who purchased shares at a company value of less than $20 million made the deal of their lives. Comverse's market value currently hovers around an amazing $7 billion!
Two years later, the company entered into a crisis that led to differences of opinion as to how the company was being managed. In 1989, Meshouli left and turned to other high tech investments, while Alexander became the unchallenged helmsman. Under his skillful leadership, Comverse rode the wave.
Alexander observed that, despite the great demand for voice mail products by corporations, the market was taking the form of a commodity. He wanted a market with handsome growth and profits, which he estimated he could find by selling voice mail systems to public telephony companies. Instead of placing the Trilogue on the corporate private exchange, he placed it alongside the telephone company's exchange.
This activity showed impressive growth worldwide, except for the US market. Octel (recently acquired by Lucent) and Boston Technologies conquered the US market. The Boston-Comverse deal, in which an Israeli company swallowed an American company in a share deal worth $860 million, was a refreshing event, and assured Comverse's unchallenged control of the industry.
The company rushed to conquer and assimilate into its customer base more than 300 communications companies, including more than 200 cellular companies, which, as is well known, is growing at a phenomenal rate. Most communications companies you know are possibly Comverse customers. Stated simply 14 out of the world's 20 largest communications companies, injcluding AT&T and NTT, are customers - need we say more?
As for finances, in contrast to the situation two years ago, the company currently has a sales turnover of over $800 million a year. Two years ago, net profit stood at $40 million. Today, it's a proud $160 million, or four times that amount. Growth? A healthy, consistent rate of 25%, which the company estimates will accelerate during the coming year.
Company data show that close to 70% of its sales come from existing customers, and the rate continues to climb. In the global voice mail market to telephony and cellular companies, Comverse's share is 42%; Lucent (Octel) has 24%, and Scandinavian information systems company Unysis 13%. Moreover, Comverse wins more than 50% of the new customers joining this market, which indicates its powerful standing continues to improve.
Comverse sells its equipment directly to customers, and then makes a profit for providing support services, through a local presence in every medium size or large market, with 40 business development, sales and service offices in 30 countries. The support services are given against payment, following the termination of the warranty, which ranges between one and two years, and is likely to make up a substantial portion of the successful company's revenues in the future.
Moreover, due to its vast experience with hundreds of customers, Comverse provides valuable marketing assistance to the customer, through special consulting departments on how to sell cellular services, how to advertise, how to package the services, and simply, what works and what does not.
In order to support these efforts, the company organizes an annual convention in which customers present their successful marketing programs or deals with other customers. Customers thus acquire valuable business knowhow, not just hardware and software.
Wall Street loves winners, and to stay a winner, Alexander must ensure that Comverse continues to grow, always a little more than he hints to analysts.
Here, we come to Comverse's becoming an Ericsson or Nokia. The two Scandinavian companies are mentioned here as examples of how giants from small countries can continue to grow. However, Cisco is perhaps a better example.
Cisco, of course, is associated with aggressive acquisitions, but the company's power lies in its control of the router market. Routers are the devices that direct traffic in corporate data networks throughout the world.
What is the connection between Cisco and Comverse? Let us explain, before we are accused of going off-track. Cisco's routers are a vital component in data transmission networks. This fact makes Cisco a preferred, reliable supplier, simply because it has almost no competition.
Cisco is currently exploiting its power, the growth rate of its shares, and perhaps most of all its marketing capability to adoring customers, in order to acquire start-ups that developed technological solutions, and market them to its customers under its tremendous brand name.
We would not like to go as far as to state that Comverse's products are as vital for telecommunications companies as Cisco's routers are. However, like Cisco, the Israeli company can set about marketing added value products that give the communications services companies the ability to offer their customers additional services and can simply be added to existing equipment. Of course, such services increase customer loyalty and air time.
Comverse is obviously already well aware of this. The company has started developing a wide range of added value services, from simple things such as sending text messages to the cellular telephone and voice dialing, to the "information peeler", i.e. information sent to the customer in the way they choose (either text or voice) and the way they define (shares, weather, restaurant recommendations, and so on).
Comverse is currently developing a voice portal, which will grant access to information, receipt of messages and e-commerce transactions. Another interesting application is cell broadcast, i.e. broadcasting messages only to those who are within a certain cellular antennae cell area, for example traffic jam reports or even commercials. Two years ago, Comverse entered the prepaid field - cards slotted into the cellular telephone that allow calls to be conducted as long as there are points in the card, a sort of "cellular telecard". This is just the tip of the iceberg.
As an interim summary, Comverse is building around its voice mail spearhead a whole range of services and products for telephony and cellular companies.
The Comverse team no doubt knows that, in order to be like Cisco, it must swallow up companies like Cisco. Comverse has made several handsome acquisitions so far that have proved excellent, breaking the statistical rule that one out of every two mergers fails. It has a realistic management that knows what is wants to achieve out of a merger, and implements it.
In an interview with "Globes" following the merger with Boston Technologies, Alexander said, and he believes this today, that he hopes we will have an Ericsson or a Nokia. He indicated that the right path is to market through local people in target markets, to create a solid marketing spread overseas, and, naturally, to reside in the US. "The minute you are not here," he said, "and don't hear Silicon Valley rumors, or read professional journals, or meet competitors, it becomes difficult to understand the direction of the market. One has to understand the market, work quickly and decisively, recognize mistakes - mistakes are made every day - and act accordingly."
Looking back, Comverse has met all the conditions Alexander indicated. It is also the global leader in a sector expected to show tremendous growth in the coming decade, and is varying its sources of revenue to include a large number of products and services. If it acquires companies in supplementary fields and exploits its financial and marketing power, we see every reason for Comverse to become an Israeli Ericsson.
Alexander said in the past, "I'm interest in being a partner to building up Comverse as Israel's biggest company, and a global power. You have to be big, and you cannot get that way only from internal growth." It's entirely on your shoulders, Alexander.
Published by Israel's Business Arena on September 15, 1999 |
