Au Revoir, NetCentrex?
The ongoing cost-reduction plan at Service Provider Information Technology (SPIT) giant Comverse Inc. (Nasdaq: CNSI) has hit the company's NetCentrex IP Communications business, which is losing staff in France and could even be wound down completely.
According to Ouest-France, about 80 staff at NetCentrex are being laid off in Caen and Lannion, while staff at other sites are believed to be under threat.
While it didn't comment on the reported job losses, Comverse's parent company, Comverse Technology Inc. (Nasdaq: CMVT) (CTI), admits it might shut the NetCentrex business altogether -- a far cry from the optimism of just a few years ago.
NetCentrex, which sells VoIP application servers, IP centrex platforms, and hosted IP services to operators, was acquired by Comverse for US$164 million in 2006, when the prospects for an acceleration in IMS (IP Multimedia Subsystem) deployments were encouraging. At that time, NetCentrex was generating annual revenues of around $30 million. (See Comverse Nabs NetCentrex for $164M, Netcentrex Counts 3M, and Comverse Offers Hosted IP Comms.)
But despite having some big name customers, including Orange (NYSE: FTE) and Italian triple-play operator Fastweb SpA (Milan: FWB), NetCentrex didn't manage to grow from there. In a filing with the SEC, Comverse notes that the acquisition was "intended to broaden Comverse’s positioning in the VOIP service provider market. However, during the fiscal year ended January 31, 2008, the Netcentrex reporting unit of our Comverse segment experienced a decrease in its results compared to its prior performance."
And in 2008, things got worse. "Netcentrex experienced a significant reduction in orders from its key customer during the second quarter of the fiscal year ended January 31, 2009. These factors adversely affected the projected future cash flows and the estimated fair value of the Netcentrex reporting unit. As a result, we recorded non-cash, pre-tax goodwill impairment charges of approximately $21.4 million and $135.1 million for the fiscal years ended January 31, 2009 and 2008, respectively."
That contributed to the financial problems at CTI, which has just filed restated annual reports for its fiscal years ending in January 2007, 2008, and 2009 following its share options investigation. (See Comverse Settles Backdating Case.) Those reports show that CTI reported a combined net loss of more than $1 billion during those three financial years. The company has yet to publish the results for the year ending in January 2010.
As a result of the parent company's financial predicament, and tough trading conditions in the telecom technology sector, CTI looked to offload NetCentrex as a standalone business earlier this year, but failed to find a buyer. Now, CTI is "evaluating other initiatives to improve its focus on its core business and maintain its ability to face intense competitive pressures in its markets, including strategic options for, or potential wind down of, its Netcentrex business."
The demise of NetCentrex is only part of the story at CTI, which counts network security and analytics specialist Verint Systems Inc. and signaling software firm Ulticom Inc. as its other main subsidiaries. According to reports, the likes of Amdocs Ltd. (NYSE: DOX), HP Inc. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Oracle Corp. (Nasdaq: ORCL) have been approached about the potential acquisition of various parts of the CTI empire. (See SPIT Watch: HP's Cloud Hire.)
CTI's re-filed financials show the company reported revenues of $1.68 billion in the financial year to the end of January 2009, of which $925 million was generated by Comverse.
— Ray Le Maistre, International Managing Editor, Light Reading