Hi Jay,
I couldn't help but respond to your recent post. All of your posts have been well thought out and you articulate your position very well. In this spirit, please take what I have with a grain of salt....I am not trying to incite a riot....just offering a different perspective from someone who has lost over $80,000 in this company during the past three years. FYI, I was a customer of DLGC dating back to 1992....not anymore. The recent sheninigans with Goldman Sachs, along with a long and thorough review of this company has given me a different perspective.
One of your criterion for good companies is low cost production with high margins. Dialogic management has proven over the past several years incapable of controlling costs. Even though their products are generally priced higher than the competition, DLGC is incapable of producing stellar earnings because they cannot control their costs, and thus, their margins continue to deteriorate. Last year Brooktrout and Natural Microsystems both nearly quadrupled their stock price and produced stellar earnings, while Dialogic languished in the low thirtees with no growth in earnings. While neither of these direct competitors had better products, they were able to produce earnings which rewarded their shareholders. The only reason Dialogics stock price rose at all was due to the gain they had from the sale of VCS stock. I never understood why magazines like Smart Money et al recommended Brooktrout over Dialogic....I do now....it has nothing to do with the products, but rather, managements ability to capitlize on its assets.
Dialogic brags about spending more in R&D than the revenues of their competitors. That is like bragging that you paid 4 times as much as the guy next to you for the same product. If all of this R&D is really worth something, where are the results. How many articles have you seen touting DM3 ( the most recent R&D effort which Dialogic proudly stated was the largest in it's history) ? You can scan infobases all over....not even Dialogics own PR department is talking about it. One would think that since they are always touting how they spend millions on R&D that they would at least try to get someone interested in the product. This is uncharacteristic of their marketing department, and could signal problems. Could it be that it has been a big failure? Only time will tell.
Another criterion you point out that Dialogic possesses is management with a vision. This was true in the late eightees and early ninetees (before management got rich off the IPO), however, it no longer appears to be the case. I have sat back and painfully watched over the past several years while Dialogics management squandered millions of OUR money on R&D projects which have not increased the value of the company where it counts....market capitalization (this has been discussed before). All of this wasted R&D effort would have contributed significantly to earnings, and would have increased the value of the stock to the extent that they could have bought more innovative companies which would in turn increase their growth. We as shareholders would have been allowed to participate in one of the greatest bull markets of all time.
It is natural that Bubb & company would want to create neat & exciting products, all engineers do. However, they have a fiduciary responsibility to the investor community to ensure that these investments provide returns to those who provided the capital with which to make these investments. Bubb & company have forgotten this, and seem only to want to "swing for the fence" with failure after failure, dissappointment after dissappointment (DM3 being the latest).
Management has not acknowledged that the latests R&D effort has failed....the market has already decided that (remember, the market is a forward discounting mechanism). The market is not always right...time will tell, but if the past performance of this company is any indication of the future, Dialogic will pave the road, and then some other company will come along and actually earn the money while Dialogic is off spending millions on another project instead of making money off existing products.
This is exactly what Brooktrout and Natural Microsystems have done. I watched in amazement in 1995 & 1996 as Brooktrout came along and increased their value four fold and had all of the publications talking about them, knowing that DLGC had paved the road but not reaped the rewards. The same thing happened with Natural Microsystems. I kept saying, why is this? Dialogic paved the road for them, then moved out of the way and watched them make all of their investors happy while we investors sat back stunned and confused.
While it is true that the networking & communications sector stocks have been weak as of late, let us not forget that many of the stocks which have been beaten down are still trading at 100-1000% higher than they were in 1994....after all, we are in a communications revolution right now....Dialogic is a communications company, right?. In contrast, Dialogic is trading right where it was in 1994. In other words, under current management, we have seen absolutely 0% return ( in my case, severe lossess, as I started buying in 1995 at $22-25). All of this in one of the greatest bull markets in history.
As investors, we measure success by return, not egos. Bubb & company are on top of the world when they present at shows like CTExpo ...they are always the hit of the party. Contrast that to companies like Brooktrout and Natural Microsystems, who do not spend (waste) money like that, and you can truly see that those dollars come straight from the bottom line but seem to have a reverse effect on market capitalization. The market doesn't care about the Howard Bubb show...they care about results. The engineers that attend these shows enjoy the DLGC gala, but it is obvious when looking at DLGCs earnings that these same engineers who party with Bubb & company soon forget when it comes time to make a buying decsion.
The excuse of long sales cycles is just that, an excuse. Companies like Cisco have always been regarded as having complex products with long sales cycles and complex implementations, and in fact, used to do all sales direct for that very reason....they did not have the huge unpaid sales force Dialogic enjoys. The difference between these companies was that Cisco had a management that cared about its shareholders, and balanced R&D with what the market needed today, with an eye towards the future. They never bet the entire company on one R&D effort which, if not successful, would doom the company. They realized that over the long term, they had to produce results both short and long term if they wanted the capital to grow and prosper.
Dialogic had alot of potential to garnish a huge share of the booming CTI business. However, they missed the window of opportunity, and seem to be on their way to not even being a pimple on Lucent, Northern Telecom & Mitel's ass. Both of these companies just recently released another great quarter in a string of great quarters, so the excuse of weak international markets and all of the other excuses which seem to stream out of this company to explain failure after failure is just that...an excuse. Maybe that is what the new DM3 Mediastream architecture is for....to increase the bandwidth and density so that they can increase the volume and types of excuses they have for constantly dissappointing their investors, quarter after quarter, year after year. They never exceed estimates, but frequently dissappoint. As for the recent statement that expectations were too high, that is bull. The market DLGC is in has been booming for several years, and their peers, whose product portfolios pale in comparison, have consistently exceed expectations. The recent quarter was not as strong for Brooktrout, but at least they exceeded last years earnings by 40%. Natural Microsystems was even better.
Great companies must have great products, marketing, and financial results. Companies like Microsoft & Intel got to be great because they used their resources wisely. We have all been severely punished because our company does not.
I agree with you that DLGC is ridiculously undervalued. Compaq recently bought Microcom ( a modem maker) for 280 Million. This company did basically the same thing Dialogic has done. Back in the early 90's, they had products which were as good or better than U.S. Robotics. They had a larger VAR channel, yet, they were constantly squandering money on failed R&D projects. They sat back and watched as U.S. Robotics took over the market. Compaq saw value in Microcom, because they do have outstanding enginneers, much like Dialogic. What they didn't have was the same reciple U.S. Robotics had, and that reciple is that you must reward shareholders. Success begets success, and U.S. Robotics realized that in order to succeed, they would have to grow the business.
Our only hope is that a white night like Compaq or Rockwell will come along and see the value of the products Dialogic possesses, because management has proven that they will be another Microcom....a company with superior technology but totally clueless when it comes to growing a company. Unfortunately, time is not on our side. BTW, Compaq is interested in Dialogic products...they are joint marketing Dialogic boards on Compaq Servers as a CT Server solution. Please Compaq, one more acquisition. Just think what you could do with the outstanding products Dialogic has. If not Compaq, maybe Rockwell. They are divesting their defense businesses and very interested in communications (in fact, they also have a joint deal with Dialogic).
ANYBODY, SOMEBODY, BUY THIS COMPANY. Their is true value here, the current management just doesn't know how to tap it. |
