Here's something on DOX which I could easily have held through earnings. DOX + 5 7/16 C
ommunications Features
Non-Secret Anti-Lucent Weapon
By Eliav Allalouf
Amdocs is glowing with satisfaction at the exponential increase in the global demand for communications equipment. This could be one explanation for the company's pleasing results in September-December, which outperformed analysts' forecasts. For the fourth quarter of 1998, the company reports record sales of $131.4 million, up 12.5% compared to the preceding quarter. In the past four quarters, Amdocs's revenues totalled $450 million.
Quarterly operating profit stood at $30 million, a 15% increase over operating profit for June-September 1998. Net profit amounted to $20 million ($0.10 per share), 70% higher than in the preceding quarter, and, as stated, higher than analysts' forecasts which called for a per share profit of $0.6-0.9.
The significant increase in the company's net profit can be explained by the ratio it maintains between services and software. Revenue from services embodies a low gross profit, whereas revenue from software carries a high rate of almost 100% profitability. Since the proportion of software revenues out of the general revenue mix has risen, those revenues made a greater contribution to net profit. Robertson Stephens economists assess that this trend is likely to persist.
A consequence of the global deregulation process was the advent of more than a thousand young telephony companies, specialising in different niches and geographic areas, and threatening established telephony companies.
The ponderous telecom companies that, until not long ago, were offering their customers a fairly sparse range of services, are now in need of sophisticated solutions in order to create product differentiation enabling them to compete with the nimble young companies that are biting into every conceivable niche. These companies are thus precisely the address for Amdocs's products. The company's customers include well known telecom firms such as GTE, SBC, Deutsche Telekom, US West, Sprint, Bell South, Bell Atlantic and Bezeq.
Amdocs supplies customer service and billing systems, and support solutions for a diverse range of services. These solutions enable telecom companies to ride the service convergence wave - local calls, overseas calls, cellular and Internet telephony.
Convergence oriented telecom companies acquire complementary services and expand their existing service basket. Accordingly, they need systems of this kind, which enable them to send the customer just one single bill for all his communications expenses.
Such companies, moreover, need information systems enabling them to identify consumer behaviour patterns, and offer those customers customised pricing packages. For example, a customer making overseas calls for a total of $300 a month will be offered a 20% discount on overseas calls totalling $500 a month.
One fact that is sure to affect Amdocs's future business is the acquisition of Kenan by Lucent in a share deal worth $1.5 billion. Kenan, a private company with annual sales of $175 million, focuses on service convergence, especially for rapidly growing new communications companies (known as "clecs").
Lucent, which had hitherto been scouring around for a broad platform of billing and customer service programs, with a view to integrating them into its hardware products, regards Amdocs competitor Kenan as an important strategic acquisition. It is assessed that Lucent will try to construct a "one stop shop" for communications companies, using Kenan and Ascend. Ascend is a data communications equipment company that Lucent recently acquired in a $20 billion deal.
Robertson Stephens analysts note that companies such as Cisco, Nortel and Amdocs are not particularly enamoured of this possible turn of events. They fear the industry will be overrun by Lucent, and are accordingly expected to forge strategic alliances, possibly also making various acquisitions to overcome the bugbear of the billing systems and customer service industry, namely the incompatibility of the various systems.
The creation of an open, non-patented standard, enabling the customer to switch easily among the products of various companies, will thwart Lucent's plans. In the assessment of the Robertson Stephens analysts, Saville, which trades at company value of one billion dollars, and whose activity bears a remarkable similarity to that of Kenan, is an almost certain acquisition target, likely to be priced at not less than $1.4 billion. In their estimation, Amdocs, too, is attractive, mainly because of its diverse range of activities and its high powered presence among major customers.
Following publication of its financial statements, Amdocs (DOX) shot up 25% yesterday to $21 per share, reflecting a company value of more than $4 billion. Amdocs now has the highest value of any of the Israeli companies traded on Wall Street.
Published by Israel's Business Arena January 27, 1999 |
