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VocalTec in End Game

Light Reading
News Analysis
Light Reading
7/28/2005

Troubled VOIP equipment vendor VocalTec Communications Ltd. (Nasdaq: VOCL) has initiated a bidding process to find a buyer as it runs out of cash.

The vendor has been struggling for some time and recently announced it was focused on seeking new investments (see VOIP Pioneer Faces Meltdown ).

Announcing its latest quarterly numbers Wednesday, the company said it had cut its headcount to 35 (see VocalTec Reports Q2, Cuts Back). A spokeswoman confirms that this means that two thirds of its staff, about 65 people, had been let go, but the company is not commenting on whether CEO Elon Ganor had quit or is about to leave, as suggested in some Israeli media outlets.

The vendor also noted that it had received a $1 million bridging loan from its biggest shareholder, Deutsche Telekom AG (NYSE: DT), to give it time to pursue M&A possibilities. The spokeswoman confirms that Vocaltec was in "M&A discussions" and had initiated a bidding process, but wouldn't say how many parties were involved, or what sorts of companies they are (vendor, private equity, or other).

And there's no update, and no comment, on the equity investment commitment made by VOIP industry figurehead Jeff Pulver back in June, which temporarily boosted the share price but which, so far, has not resulted in any cash input from Pulver or any of his companies.

The spokeswoman also couldn't provide any timescale or deadline for a decision on the company's fate, but says that with the loan from DT, lower costs as a result of the headcount reduction -- "as of yesterday we have stopped bleeding cash," she notes -- and ongoing revenues, VocalTec had enough cash to last beyond the end of August.

It's hard to see who might be interested in buying VocalTec, says Heavy Reading analyst at large Graham Beniston, who has written several reports on the VOIP infrastructure market (see The Softswitch Name Game, Heavy Reading Reports on VOIP, and Heavy Reading Eyeballs VOIP Control).

"I can't see anyone being interested. The softswitch game has been played out, and now it's reckoning time as sector consolidation takes place. Anybody without an IMS story is vulnerable," reckons Beniston.

And VocalTec can't rely too much on its revenues keeping it afloat for long. It managed just $1.4 million in revenues and recorded a net loss of $2.4 million, or 16 cents per share. The company ended June with just $1.7 million in cash after using $3.3 million during the quarter, though that burn rate is set to fall now that staff costs will be lower.

The news sent VocalTec's stock down 8 cents, more than 10 percent, on Wednesday, to $0.68.

— Ray Le Maistre, International News Editor, Light Reading




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