Xpert: Profiting from a gold rush

“Do you know who profited the most from the Gold Rush?” asks Xpert Integrated Systems President and CEO Amnon Bar-Lev. “Levis. And this is exactly what we’re doing now.” Bar-Lev has good reason to smile. Xpert is making money at the expense of Internet providers that are barely able to keep their heads above the water. Naturally, Xpert Integrated Systems does not make jeans, but one should not be taken by surprise if, as part of one of the eight-year old company’s many reincarnations, “Xpert” labels begin appearing on dungarees in Israeli stores.

Xpert Integrated Systems was founded in 1993 as a systems management company, and mainly dealt with UNIX, which demanded considerable expertise. The company’s founders were Eran Wagner and Limor Schweitzer. Bar-Lev joined later. On the strength of a project to hook up a university to the Internet in Morocco, Xpert decided to spin off XACCT Technologies to handle billing services codes originally written by Xpert.

After the split, Xpert continued to collect the building blocks needed to prepare the company for a new path. At first, the company developed open management systems for large enterprises, such as ECI Telecom (Nasdaq: ECIL), NICE-Systems (Nasdaq: NICE), Tecnomatix Technologies (Nasdaq: TCNO), and others. In order to enter this field, the company needed information security and networking solutions.

That is how Xpert’s present configuration developed. The following are examples of the work it has carried out since: Establishing Elronet, an earlier incarnation of NetVision; establishing the Mofet Internet provider for the Ministry of Education; advising Ericsson on VoIP security; establishing an ISP in Italy; and advising the Austrian branch of Italian insurer Generali.

“By gathering these building blocks,” says Bar-Lev, “we created a company that provides solutions, rather than (one that) supplier of products.” Today, Xpert defines itself as an infrastructure solutions provider for IP, the dominant protocol in the world of information.

Xpert uses its accumulated systems operations, security, and communications know-how to build “Data Centers”, a new global trend that is especially prevalent in the US. Xpert was involved in a data center project in Amsterdam, which will ultimately include 80,000 servers. Xpert provided the platform management systems, which have to be capable of quickly installing operating systems and other systems for 80,000 servers. Although the project encountered serious cash flow problems, Xpert was ultimately paid several hundred thousand dollars for its work.

Xpert also learned how to provide another service: converting content providers to Application Service Providers (ASPs), by helping them lease software online. The company is currently working on several such projects, in an attempt to teach content providers to cope with thousands of online customers who want to use their network software. Xpert also builds server farms for Internet providers Bezeq International and Nonstop in Israel.

A most fashionable company

The consultancy and implementation field is growing rapidly, and Xpert’s competition is growing all the time. “IBM Global Service offers a similar service to ours,” says Bar-Lev. “but still has business relations with us, because it lacks considerable know-how, which we supplement. We may not be a 6,000-person company – we only employ 150 people – but we can still offer something no-one else can.”

Who needs consultancy and implementation services? Xpert VP marketing Benjamin Levy explains, “Technology bought from Cisco (Nasdaq: CSCO) can’t be connected to an outlet like a television, so that all you have to do is lie back on the sofa. The people installing the systems and making sure they work, aren’t from Cisco, but from the installation company, which has to link hardware and the Internet, and has to have knowledge about both of them. These companies are therefore called ‘integrators’.”

Xpert has tried to maintain 100% annual growth since the day it was founded, and hopes to preserve this rate in the future. Until this year, it financed its expanding activities by itself, but recently needed to raise $15 million to help finance its penetration of the European market. The company will announce the results of the funding campaign soon. Part of its plan for gaining a foothold in Europe includes acquiring local companies in several countries.

Investors in the financing round included venture capital firms WebTech, CDB, Israel Seed Partners and Ampal - American Israel Corporation (Nasdaq: AMPL). Ampal also invested in Xpert’s seed stage, and is currently one of the company’s main shareholders.

Xpert also has to cope with strong competition from consultancy companies such as Accenture (formerly Anderson Consulting), which also cooperates with Amdocs (NYSE: DOX), by the way. “Accenture might be a competitor,” says Bar-Lev, “but because we’re a niche business compared to them, they sometimes approach us for assistance. For example, giant Accenture provides ‘overall consultancy’ for Amdocs, and is more involved with writing documents, while we are more hands-on.”

When asked about the company’s balance sheets, the reply we received was almost a shout: “Balance!?” “This company has been profitable from the day it was founded. We’re simply an old company in a new economy market. We’re not a Cinderella story. It’s simply necessary to build up a company brick by brick,” says Bar-Lev. He expects continuing to lay bricks, so that by 2003, he can have sales of $80-100 million a year.

Benjamin Levy says, “Xpert has become the most fashionable company in the industry, for the simple reason that we make money. The headline-grabbing companies are usually the ones with all kinds of mini-applications, and no-one knows precisely what they do. If you’re asking who can set up systems that will enable you to deploy the entire foundation for an operation like this, you’ll come to Xpert in the end.”

It is clear to Bar-Lev that the investors in the company didn’t invest their money out of generosityf; they want to see Xpert make a fat exit. He is not talking about an IPO at this stage, even though the company is mature and has good prospects. “An issue is definitely somewhere down the road, but I’m building a company here, and what will be, will be.”

Published by Israel's Business Arena on 19 April 2001