Comverse Plans for Independence

BSS vendor is set to become a standalone company on Oct. 31, and its new senior management team is confident it can grow faster than the market

September 10, 2012

3 Min Read
Comverse Plans for Independence

Billing and VAS (value-added services) systems specialist Comverse Inc. (Nasdaq: CNSI) is set to become an independent listed company on Oct. 31, the Service Provider Information Technology (SPIT) vendor's management announced Friday as its parent holding company, Comverse Technology Inc. (Nasdaq: CMVT), revealed its fiscal second-quarter financials. (See the full earnings release here.)

Comverse Technology has long talked about spinning out Comverse, which will be known as Comverse Network Systems (CNS) at the end of October, so the move is no surprise. But now there's a set date and all the process now requires is the approval of Comverse Technology shareholders on Oct. 10. (See SPIT Bits: M&A Matters and Verint to Merge With Comverse Tech.)

CNS will be a company with annual revenues of about US$680 million, based on the performance of the Comverse BSS and VAS business lines in the three months ended July 31. In that fiscal quarter it generated revenues of $171.2 million and operating income of $13.8 million.

And when it gains its independence, it will have cash of $200 million and no debt.

Philippe Tartavull, who will be the CEO of CNS, is bullish about his company's growth prospects. (See Comverse Gets a New CEO.)

During Friday's earnings conference call, he boasted of the company's strength in the VAS sector (300 customers) and in converged billing (a combined post- and pre-paid billing/charging system), where Comverse has 37 customers, of which 10 have live installations.

For the VAS market, the CEO talked up the potential of CNS's Service Enablement Middleware (SEM), a service delivery platform designed for legacy as well as IP applications (including third-party applications) that, the company has stated previously, has attracted considerable interest. (See Comverse Targets IP Messaging.)

Tartavull also took a swipe at his rivals. "I believe there's demand for systems [to be] priced so that the price doesn't double during the execution stage" and for systems that don't have to be rewritten during implementation.

Ooh, that's fightin' talk! And, of course, now CNS will have to ensure it never does either of those things…

The CEO is also confident that CNS can pick up the pace and grow after what has been a disappointing first half of the financial year, during which the company generated revenues of $309 million and reported an operating loss of $9 million. He reckons the company is on course to post an operating profit for the second half of the financial year (ending Jan. 31, 2013) and to break even at an operating level for the full fiscal year.

Tartavull is adamant the company can "capture growth with reasonable margins, even in a difficult environment," and grow faster than the overall BSS market.

He is targeting fresh opportunities primarily in Asia/Pacific and EMEA (Europe, Middle East and Africa), but believes the Americas will be a harder proposition. He noted that the U.S. market is challenging as it is concentrated around a few large operators that already have BSS suppliers -- "we are attacking but it will be difficult to crack" -- while many of the opportunities it sees in Latin America could come through major European operator parent companies.

And CNS isn't ruling out involvement in M&A as a way to grow its business. Tartavull said he is looking at what to do with the cash CNS will have, and while it's "a bit early to decide whether we will be a consolidator … we can be a player."

— Ray Le Maistre, International Managing Editor, Light Reading

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