Investors in LanOptics shares have swallowed many a bitter pill in recent years. Not one of the high hopes held out some years ago by company chair Eli Fruchter has been realised. LanOptics today is something of a deadbeat, struggling to survive in a competitive, high-tech world, and scarcely managing to post $20 million in annual revenues. It's no use expecting any profits from today's LanOptics, which is precisely why the company's share is trading at less than $2. When times were better, it reached ten times that level.
Four months ago, Fruchter said, in an interview with "Globes", that today's LanOptics is actually a "three start-up company". LanOptics, that started out in the data communications field, acquired a more finely honed professional edge in recent years, and today actually engages in three highly risky fields. Its chances of achieving a strong breakthrough are evenly matched by its chances of collapsing and being wiped off the map.
One of LanOptics' start-ups gave definite indications, on Monday, that it is about to vanish much faster than expected. LanOptics announced its decision to liquidate the activity of subsidiary NetXchange, while at the same time streamlining, by consolidating the marketing and management HQs of the two divisions that will remain to the company after NetXchange is liquidated.
NetXchange develops and markets software programs enabling facsimile messages to be transmitted over the Internet. According to Fruchter, in the above-mentioned interview, this program has already bitten off 10% of the world market share in a sector for which significant growth is predicted in the next few years. LanOptics' forecasts, however, seem not to have been borne out by developments at NetXchange, which was drawing too heavily on the company's resources. This prompted the decision to close the subsidiary. Lanoptics' payroll will thereupon be cut by 20%, resulting in a further streamlining.
Fruchter will now be left with two start-ups. LanOptics will have two divisions, on which the company will concentrate the brunt of its effort to jack up its value. The two divisions are Switching, which develops switching equipment, and the one operating under the subsidiary NetGuard, which develops Firewall products designed to provide information security on the Internet networks of organisations operating in NT environment.
NetGuard's foremost competitor, which has also contrived to become a world leader in its field, is, of course, our old friend Check Point of Israel. So far, NetGuard has had difficulty in penetrating its target markets, and its market share is considered relatively small.
Five months ago, US investment bank Solomon Smith Barney was co-opted to the effort to extricate LanOptics from the mire. The bank tried to find strategic partners wishing to acquire LanOptics or one of its divisions, and possibly to co-operate with it via OEM agreements or otherwise. The bank clearly indicated to LanOptics that, given the present state of the financial markets, it would take longer than originally estimated to deal with the company's problems. So LanOptics took the decision to discontinue the activity of NetXchange straight away.
The announcement that NetXchange is to be shut down came accompanied, last night, by LanOptics' financial statements, which have nothing new to report. The company wound up the third quarter of 1998 on revenues of $3.9 million compared to $5.8 million in the corresponding quarter last year, while net loss will amount to $4.4 million (including a million dollar allowance for closing down NetXchange), compared to a loss of $1 million in the third quarter of 1997.
Published by Israel's Business Arena November 4, 1998