"I've decided to open up Teledata to the press. I believe that part of employees' feelings come from what they read outside the company," ADC Teledata Communications' new CEO Amnon Unger says, four months into the job. The statement reflects the drastic change in company strategy, which is also visible in its marketing and sales.
Due to the fact that ADC Teledata is an enigma to the Israeli economic and high tech media, here is a brief history of the company:
End user access systems provider Teledata was founded in 1981 by Naftali Wachs, the same year that Efrat, now Comverse, was founded. Look where Efrat and Teledata are now. Not only Efrat, however, is an open wound for Teledata, look at ECI Telecom. Teledata was always one step behind ECI, and at one point a possible merger was even seriously discussed. Today, ECI is an international communications giant, while Teledata is still in the category of a promise.
Teledata's historical product, still the major factor in its success, named DCS-20, is a flexible access multiplexer for connecting up to 480 subscribers to a remote exchange over only one line. The product was presented in 1987, earned dizzying success and provided the backing for a 1992 US issue. Teledata raised $26 million for 40% of its shares.
In 1991, the company started to develop new radio communications-based products, designed for remote areas without infrastructure. One was named ERC, which provides a solution for the lone subscriber in a remote location. The system provides the subscriber with telephone service via radio, without physical lines, enabling telephony companies to serve customers in remote areas with difficult access.
Teledata's third product is the TIMUX, for access to ISDN exchanges for subscribers not using the ISDN standard. Another product is the CT-Loop, an urban communications system using HDSL technology to connect groups of up to ten subscribers to the exchange, based on one pair of copper wires.
After the 1992 issue, it became evident that Teledata was not meeting the target dates for the development of the last three products. The share plunged against this backdrop, CEO Robert Hartman was dismissed and replaced by Joseph Atsmon, who was brought in from Tadiran and remained in Teledata until April 2000.
Dovrat-Shrem takes over
In August 1996, Dovrat-Shrem took control of Poalim Investments, the largest Teledata shareholder. In May 1997, the new controlling shareholders issued on the US stock exchange a second time and raised $72 million. However, following the issue, problems started. Firstly, delays were incurred in releasing the new products on the market and secondly, the Far East economic crisis sent the share southward.
At the beginning of 1998, extremely serious discussions were held to sell Teledata to ECI. The main reason the discussions were not fruitful was the demand by Poalim Investments for $27 per share, $1 more than the issue price and $12 more than the market price at the time. In April 1998, it was reported that US company ADC was acquiring Poalim Investments' shares in Teledata and would issue a public tender offer in order to attain 100% of the shares. The deal was signed only in mid-September 1998, at $15.75 per share, after the share plunged to $8.5.
Teledata regards the Dovrat-Shrem period as a dark period from the professional aspect. Joseph Lehmann, formerly Teledata senior VP and currently general manager of subsidiary G-Connect, says openly, "The Dovrat-Shrem takeover in effect put the final nail in the coffin vis-a-vis chances of growth. They wanted to take profits - as much and as swiftly as possible."
ADC to the rescue
In retrospect, it is clear that the sale was good for the company, even if it took Teledata out of the list of Israeli-controlled high tech companies. Teledata was one of the first companies leading the trend of Israeli communications companies being acquired by foreign ones.
ADC was founded in 1935. It was issued on Nasdaq in 1980 and entered into digital signal transmission through various communications means. At the time, all communications were analog. Since the beginning of 1998, ADC has acquired 16 companies, including Teledata for $200 million.
Amnon Unger came to Teledata late in 1998, following the acquisition by ADC, serving as VP of development. Unger, 45, delayed his army service in order to study and later served in the (famous) 8200 unit. He retired from the army two years ago a Colonel, and in his last post headed the unit's technology center.
Once ADC decided to end the Atsmon era, Unger was catapulted to the top of the pyramid in a surprise move. When a company buys another company, it normally prefers to appoint its own general manager, particularly it is a foreign company. In this instance, ADC made a doubly surprising move: it initially left Atsmon in the job, and later replaced him with Unger.
"Globes": It is a little surprising that after slightly more than one year with the company, you were appointed CEO, instead of a professional general manager with vast experience from outside.
Unger: "The company reviewed external candidates and examined me as well. ADC works in a decentralized manner, delegating authority and putting its trust in the companies it acquires."
What has the acquisition done for Teledata?
"A great deal. We'll start with the problematic areas: the acquisition is a change in organizational culture. Sometimes it's a smooth process and other times it's difficult. It takes time to absorb new patterns of thinking.
"Once we got acclimatized, we found that we had access to deals which hitherto Teledata could not reach, mainly due to lack of ties or financing. ADC gave Teledata strong financial backing.
"We integrated sales in the organization. Two months ago, we brought over ten ADC sales people who had been trained in our products, and we're already seeing results with all sorts of sales recently popping up."
New product
When Unger talks of products, he mainly refers to the company's latest product, the broadband version of DSC, first presented at the SuperCOMM 2000 exhibition in Atlanta at the beginning of June.
The product is a smart access platform, designed to enable end users to switch between modest and high bandwidth services, including quality full-length DVD films, dynamically and in real time. The user can choose allocation of bandwidth, quality of service, content and access destination. The network enables service providers to offer their customers a range of different services and separately price the services accordingly. This is an era in which communications services are turning into a consumer product, with harsh competition over prices.
The product was first launched in the US market, where ADSL based broadband services are gathering momentum. ADC plans to integrate the smart access network capabilities in all its products, including those designed for the European, South American, South East Asian and African market.
They say that Teledata today is like a mirror of ECI, had it failed. The comparison is no compliment to Teledata.
"I don't look to the past, only to the future. My vision is to surpass ECI. It may sound ambitious, but I believe it can be achieved."
What is your revenue forecast for 2000?
"$80-100 million."
Does you vision include surpassing the $1 billion mark?
"My goal is to exceed $500 million by 2004. It's the target we agreed upon with ADC and it can be achieved."
What needs to be done to achieve this goal, apart from increasing sales?
"It means positioning Teledata as a special company, giving employees the feeling that they are the company's main asset, and creating career development routes for them. It means positioning the company in more interesting technology fields. It also means using external PR. I plan to introduce unorthodox processes into the company, for example, inquiries into successes and failures."
Will this be a boost for the company?
"No. It's a necessary condition but insufficient. It comes under the heading of company image in the eyes of employees and the high tech market in Israel."
Acquisition strategy
How do you intend to bring growth to the company?
"Three areas will bring us growth. The first is strong integration with companies with ADC ties; the second is a strategy of acquisitions, which means entering into new fields as well as those tangential to our fields, so that we can offer a more complete basket of products to our customers. When I say 'we' I'm referring to ADC, not Teledata. The third is the setting up of additional start-ups through the ADC fund. Another activity is spin-offs - bringing in external investors for specific activities of the company, with an option to re-acquire the activity."
What is the logic behind this?
"It's difficult to compete against start-ups vis-a-vis the volume of investments in a relatively short time. A spin-off can greatly accelerate development through large investments."
Staying focused
The company failed to meet development goals in the past.
"When I entered the company, one of the things that disturbed me was the lack of focus. We have since focused our development efforts. The broadband version of the DSC was released in May 2000. The target date had been set for April 2000. We also plan to meet future development timetables."
What differences has the change in focus made?
"I'll give you two examples. There is a tremendous difference between a $100,000 deal and one for several million dollars. It was a mistake to go for both types of deals and we don't do it any longer. There are priorities in development, too. Today, no development is without ADSL. If the overall picture currently shows that something is not the right thing to do, because it is either too small or deviates from the development plan, we simply don't do it. Even if it is possible to make an immediate profit, we don't take that into consideration."
Are you talking about acquisitions in Israel or overseas?
"Only in Israel."
In which fields?
"Generally speaking, in the access field. ADC defines its activity as in the access field. We're looking for a profile of companies reaching a certain level of maturity, which have already started selling, so that ADC's sales channels can help them through the stage of developing sales channels. This is the correct timing for acquiring them in order to leverage sales and lead them to revenues in a relatively short period of time, thereby turning them into a contributing factor in ADC revenues."
Are negotiations already underway?
"We're currently at the search and examination stage."
Are you considering only acquisitions?
"No. We're also considering partial investments in companies."
How are you coping with migration of employees in the sector?
"It's a problem and we're therefore pressing for approval to import foreign workers to Israel."
Look at yourself. Israel is a free market and you're incapable of withstanding competition in wages. You're struck by the start-up scare and you think the solution lies in importing foreign workers?
"The market unbalanced. It's a problem faced by all the large companies.
"The gap between supply and demand pushes us into dangerous situations on the wages front. If it continues, I can't envisage Israeli companies competing on the international market."
Published by Israel's Business Arena on 13 September, 2000