TTI Team Telecom International (Nasdaq: TTIL) has surrendered to the market. The company, which provides software solutions for management and control of communications networks (NMS), and support systems, has up until now managed to dodge the market crisis – an impressive achievement. The uncertainty, however, is now affecting its business, too.
While the company’s second quarter results published yesterday were certainly fine – a $5.1 million profit ($0.42 per share) on a $19.2 million turnover, compared with a $4.4 million profit (0.36 per share) on an $18.2 million turnover in the first quarter, the third quarter is liable to be a different story.
”For now, we’re not changing our forecasts or work plan for the year,” said TTI Telecom CEO Meir Lipshes. “Nevertheless, in terms of our orders backlog, our visibility is shorter than it has been.”
”Globes”: What is forecast for your third quarter numbers?
Lipshes: ”There is uncertainty in the market. We believe we still have a chance to meet our third quarter forecast. Instead of providing figures, however, we decided to give information about the state of our transactions and let you judge for yourselves.
”In addition to our current backlog, we’re negotiating with six new customers. The volume of these contracts is likely to reach $15 million.”
How much of that sum is relevant to the third quarter?
”Some will be recognized in the third quarter, but we aren’t providing figures. It depends on what date the deals are closed, and on other parameters.”
Is it likely to be a substantial proportion of the $15 million?
”Yes, it’s likely to be most of that.”
That is to say that if the contracts are not signed, company revenue is liable to fall by 30-40% to about $12 million.
”I don’t know. We’re only in the middle of the quarter. We’re giving you the information about the deals; you do the figuring. We certainly believe, however, that the negotiations with the customers will succeed, and we’ll sign deals with them in the third quarter.”
And if not?
”Keep in mind that we’ve got an orders backlog, and we think it’s unlikely we won’t sign any deal in the third quarter.”
Assume you manage to sign all six of them. Will you beat the analysts’ forecasts again?
”I’m not sure. We can certainly meet the forecasts; it also depends on the timing of these deals, and what part of them is recognized in the third quarter. In any case, it also depends on other deals.”
How much does your backlog amount to?
”We don’t disclose that figure, but clearly we don’t at present have a backlog that will be enough for the whole quarter. We are engaged in negotiations with those customers, and we also have open deals worth about $10 million with existing customers.”
Still, as we said, the company delivered the goods in the second quarter. “The second quarter results mean we have grown for 22 consecutive quarters, both in our business and in our profits,” Lipshes adds. “This quarter, we had a number of new customers, such as MobilCom of Germany, service operators in Trinidad and Tobago, and a leading Israeli cellular operator.”
You mean Pele-Phone.
”Yes. Beyond the new customers, we have enjoyed continuation orders from several customers in Europe and North America, such as AT&T, Sprint, KPN, and others.”
”How much of your revenue was accounted for by the new customers?”
”Revenue from new customers amounted to 63% of total revenue, while existing customers accounted for 37%.”
In the second quarter, TTI began to supply support management and advanced 3G communications network control systems to Hutchison Whampoa. The Salomon Smith Barney investment house recently expressed concern that the project is lagging behind schedule. For this reason, and due to the fear that if giant Amdocs (NYSE: DOX) is being hit, no one is immune, Salomon Smith Barney analyst Victor Halpert downgraded his recommendation for TTI from “Buy” to “Neutral” two months ago, while lowering his profit forecast for the year from $17.6 million ($1.46 per share) to $14.5 million ($1.21 per share).
How much did Hutchison Whampoa contribute to your revenue?
”Hutchison Whampoa, a new customer, made a very substantial contribution in the second quarter.
Was it more than $2-3 million?
”Yes.”
Is the project on schedule?
”The project with Hutchison Whampoa is progressing according to the original timetable. Actually, they’re pressing us to move the timetable forward.”
In what countries do you work with Hutchison Whampoa?
”We’re working with them in Britain, Hong Kong, and Australia.”
Are things farther along in Britain?
”It started in Britain, but we’re advancing at the same pace in other places, too.”
Will revenue from Hutchison Whampoa increase next quarter?
”I don’t want to cite numbers. Revenue will be substantial next quarter, too.”
Will the figures show growth?
”No, it’s divided equally between the quarters.”
When will you finish the project?
”We’ll finish the first phase – the main one – at the end of the first quarter of 2003.”
Some thought you’d get business from Hutchison Whampoa in other places around the world. Will that happen?
”We’re negotiating with other countries in the group, and the moment a deal is signed, we’ll announce it.”
Are you optimistic about signing these contracts?
”I wouldn’t use the world optimistic. I’d say we’ve got a reasonable chance of signing those deals.”
Revenue from Hutchison Whampoa in effect made your quarter. Without it, you wouldn’t have met the forecast.
”That’s irrelevant. Hutchison Whampoa is an important element, but without them, we’d have done other things. The company takes jobs according to its capacity, and draws up a cautious work plan. You can’t jump to that conclusion, because we can transfer our business from place to place.”
Are you saying that without Hutchison Whampoa, there would have been someone else?
”We set our priorities in advance. We made a concerted effort at the end of last year to get a contract with Hutchison Whampoa. We gave the project priority. If we hadn’t done that, we would have invested resources in other projects.”
If your gamble on Hutchison Whampoa hadn’t succeeded, and the contract had been delayed, your second quarter results would have missed the target.
”We decided in advance to invest resources in this project. I don’t know many companies growing 30-40% per year.
”In any case, we’re still seeing demand for OSS systems. Nevertheless, the picture today is different from what it was. There are fewer opportunities. The telecommunications market has slowed significantly. It takes longer to close a deal. Customers are more selective in their buying decisions. At the same time, there are tenders in our field, and we’re exposed to many tenders. There are many opportunities, particularly in the Asia Pacific region.
”We’re continuing to build infrastructure to support our global customer base by opening offices in Hong Kong and Atlanta. The Atlanta office also focuses on development of next generation line technology. It will employ 20 Israelis and 15-20 locals. We need this office to be close to our US customers and quickly supply their needs.”
Published by Globes [online] - www.globes.co.il - on August 15, 2002