Here's the SmartMoney Mag article on ASPT:
July 14, 2000
Dow Jones Newswires
SMARTMONEY.COM: Just Plain Rude
By ROBERT HUNTER
NEW YORK -- Customer service is one of the great misnomers of the modern age. Sure, products and services are getting more complicated and tougher to troubleshoot. But does the process of getting help have to be so annoying?
We all have our horror stories. A certain Japanese electronics company, let's call it Roshiba, is my personal Freddie Krueger. A few years back, I bought a Roshiba cordless phone. It was pretty robust at the time - 900 megahertz, two phone lines, a spare battery and charger and speakerphone capability. One small problem: It stopped working just a few months after I bought it.
Roshiba's customer-support hotline was no help - unless you consider long periods of Muzak followed by lame explanations and ineffective solutions helpful. The worst: "You have to reprogram the battery. Drain it, then recharge it, then be sure to keep it off the charger for at least eight hours." None of Roshiba's creative strategies worked. As any self-respecting customer might, I vowed never to buy another Roshiba product.
The point: Companies need to improve their people skills or risk losing customers. And clearly, the old way - Muzak and all - isn't working.
Some companies are trying to do better. This being the information age, they're tackling the job with increasingly sophisticated equipment - everything from souped-up phone systems to Internet technology. The market for so-called customer-relationship management (CRM) products was $5.7 billion in 1999. By 2004, it's expected to be $19.7 billion. The business of helping companies help their customers is booming.
Which is why the story of CRM technology provider Aspect Communications (ASPT) is so vexing. Even though it's a leader in its market and boasts genuine profits - which many rivals don't - its stock got pounded on Tuesday, falling from $43.88 to $20.
Why the butt-kicking? Aspect warned that it would be missing earnings estimates by five to seven cents a share. (Analysts predicted earnings of eight cents a share; Aspect said it will post one to three cents.) While missing earnings is never pretty, the beating Aspect took seems, well, excessive.
It's tempting to view Aspect as a fresh-faced Internet startup. Last September, the company launched a CRM product - the Customer Relationship Portal - that allows clients to perform full-fledged CRM over the Web using an array of technologies. Such products appeal not just to e-commerce companies, but to others that want to provide customers with more ways to get in touch.
The Customer Relationship Portal, however, was just the newest wrinkle in a 15-year history. Its newfound Web savvy notwithstanding, Aspect built its reputation developing hardware and software products that help clients create old-school telephone CRM operations. It's set up more than 7,000 contact centers for companies around the world - among them DaimlerChrysler (DCX), E*Trade (EGRP) and PacificCare Health Systems (PHSY).
Aspect's stock has always had its bouts with volatility. But since the company announced its Internet strategy (and changed its name from Aspect Telecommunications to Aspect Communications), its shares have been more spastic than a Michael Douglas love scene. Between April 31, 1999 and Feb. 14 of this year, it shot from $11.06 to $67.13, then hit several peaks and valleys before Tuesday's big sell-off.
Regional Rout
Aspect gave three reasons for missing its earnings this quarter: sales-management problems in its central U.S. region, a delay in closing big deals with the federal government and a faster-than-expected decline in hardware-platform sales.
The sales-management problem was a case of what Paul Chren, senior director of investor relations, calls "poor execution." Its sales manager for the central region (Aspect divides its business four ways: the east, central and west regions, and the federal government) had been on the job less than a year when he ran into trouble meeting his sales quota - a real problem, since the central sales region is Aspect's most important. Companies set up more customer-service operations in the Midwest than anywhere else, thanks to the region's relatively low wages.
The company hasn't explained precisely why the sales goals were not met. But it has reacted swiftly, firing the manager and replacing him with a predecessor who "is coming back from a successful assignment in Europe," says Chren. In addition, Chren acknowledges, Aspect needs "to understand at a deeper level what's in each region's pipeline." After Tuesday's drubbing, you can bet it will.
As for the government-contract problem: Aspect was counting on two multimillion-dollar federal contracts to be finalized this quarter, but they were delayed. One was inked just after the close of the second quarter, and the other is now expected to be finalized in the fourth quarter. Management says several other multimillion-dollar contracts could be signed within the year.
Shifting Gears
The third issue - a faster-than-expected decline in hardware sales - doesn't seem especially frightening either. In the last 18 months, the company has refashioned itself from a hardware company into a software company. Previously, Aspect bundled lots of proprietary software with its hardware and sold it for a flat fee. But the company realized that the real value lay in its software. Now, it makes clients pay for each piece of software but cuts them a deal on the price of the hardware sold along with it.
The upshot: The speedier-than-anticipated sales drop isn't necessarily a negative. "If Aspect announced that its only problem was lower hardware sales," posits Reg King, an analyst at Chase H&Q, "we would have viewed it as a good thing, and shares would have increased. It would have meant that they were shifting their focus toward software faster."
Now, consider the CRM market. Aspect is an unquestioned leader in electronic CRM (ECRM), the fastest-growing segment of a fast-growing market. After the earnings warning, King lowered his 2000 revenue expectations to $583 million from $647 million. "Even if Aspect falls $200 million short - which it won't - it would still be larger than its next three biggest competitors combined," he says.
Moreover, Aspect, unlike its direct rivals - which include Kana Communications (KANA), Apropos Technology (APRS), Interactive Intelligence (ININ) and eGain Communications (EGAN) - has a history of profitability. (Such larger companies as Siebel Systems (SEBL), Lucent Technologies (LU), Nortel Networks (NT) and Cisco Systems (CSCO) are also in the CRM market and earn profits, but they don't compete directly with Aspect's new portal products.) Even though Aspect will slip back into the red the rest of this year, analysts believe its troubles will be short-lived. And whereas Kana trades at more than 100 times next year's sales, Aspect, already at a discount before the sell-off, is now trading at about two times next year's sales.
Rock On
So, at Friday's price of $22.56, Aspect sure looks undervalued. "I think it's a great opportunity," says Herbert Tinger, an analyst at First Albany. "Barring some sort of ultimate calamity, I don't see why this stock would go down much from here." Aspect's problems are company-specific rather than industry-wide, he adds, "and it has addressed them quickly."
Not everyone, though, is persuaded the management problems are close to being solved. Edward Jackson, an analyst at US Bancorp Piper Jaffray, is still a bit cautious about the stock in the near term. But he thinks it's a great "value play" for a longer-term investor with a horizon of 12 to 18 months.
Chase H&Q's King, meanwhile, believes even the short-term picture is bright. "Aspect should never have been at $20. This is a good opportunity for investors to go in and buy shares at a very inexpensive price. We could easily see it move in the short term to $30 a share." If Aspect traded at even a 50% discount to its competitors' median 2001 revenue multiple, King calculates, it would be a $51 stock.
So Aspect seems to be a good stock these days. That's great. But would its CRM technology have helped Roshiba answer my cordless-phone questions? I don't know. Still, I would have liked the option of asking those questions over the Web - say, while downloading some vintage Stiff Little Fingers tunes from Napster. That would beat the Muzak version of "Light My Fire" any day.
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