ECI Telecom(Nasdaq:ECIL) is going back to the original model. 30 months after splitting into five separate companies, the group’s remaining companies are coming home. Lightscape Networks, a developer of optical communications equipment, and Enavis Networks, which develops systems for managing international communications networks, will join the communications division in the “new” ECI, with an emphasis on optical communications. Former Lightscape Networks president and CEO Eran Dariel will head the division. Former Enavis president and CEO Ruben G. Markus will become VP marketing for all of ECI.
The Inovia Telecoms subsidiary, which develops XDSL modems, will constitute the foundation for the access equipment division, which will be headed by former Inovia president and CEO Pinny Chaviv. No response to the report from ECI was available.
ECI considered its plans for InnoWave, its wireless equipment subsidiary. The company weighed adding it to the access equipment division, but eventually decided to try to sell the company. ECI has received three offers for InnoWave in the $15-25 million range, and management will probably make a decision soon.
The merging of operations under the ECI roof will be accompanied by more lay-offs. After several rounds of lay-offs in the past two years, totaling almost 2,000 employees, ECI will fire another 100-200 workers.
Saving on these expenses may be necessary, but it looks like ECI is once again lagging behind. The splitting of the company, which at the time was intended to enhance the value of the companies through exits, missed the boom by six months. Perhaps it was bad luck, and maybe ECI continued to maintain its overstaffed administration for the next two years in the hope of engineering major financial moves. With all due respect, the most recent measure, the merger of NGTS (Next Generation Telephony Solutions), the subsidiary that develops products for the VoIP market, with US start-up NexVerse, is still far from delivering the goods.
ECI was willing to pay for its overstaffed administration in order to leave its options open. Only now, when the upcoming Lightscape IPO appears unrealistic, buyers for Enavis are few, and even Siemens (NYSE: SI; XETRA: SIE) and Nokia (NYSE: NOK) aren’t chasing after Inovia, has ECI finally decided to rescind the splitting of the company.
”The move was necessary, as people said a year ago,” says Foresight analyst Roni Biron, “and I refer mostly to the link between LightScape and Enavis. There are actually a number of synergies between these two companies. First of all, Enavis has a reputation and customers in the US, where LightScape has no significant presence. LightScape wants to reach this market, but is having trouble doing so. The company is currently very active in China and Europe, but its main target market is in the US, and it may be able to get there through the merger. For its part, Enavis is weak in regions where LightScape operates, and can increase its sales, using LightScape’s marketing setup.
”As far as product lines are concerned, the products are fairly complementary. Enavis’s cross-connect product line is designed for managing communications traffic on global networks. In addition, they have a new, recently launched product, the T::CORE optical switch, designed for global networks. These products obviously appeal to international communications companies.
”LightScape’s products are designed for metropolitan networks, which means there is synergy between the segments of the network for which the companies’ products are designed. Furthermore, Enavis’s situation also requires combining the two companies. Enavis has had to reconstruct itself in the past year, after losing its main customers: Global Crossing, Concert, and WorldCom, which simply vanished. The company is now rebuilding its customer base from scratch, and doing it very well. However, in order to achieve the same sales levels it formerly enjoyed,no easy task, it needs the link with LightScape.
”Enavis’s basic product lineis aimed at a market share of hundreds of millions of dollars annually. The company’s new product is likely to open doors to the really large firms. This is a multi-billion dollar market, which includes Alcatel (NYSE: ALA) and Tellabs (Nasdaq: TLAB). This product has great potential, and is also considered technologically superior to the competitors’ products, but that’s not enough. The problem is the competition, and Enavis needs more marketing power, which the link with LightScape will provide.”
In addition to its sales potential, Biron believes the merger will also save on costs. “There has to be a good enough reason to maintain a number of separate managements, even though it is possible to combine them,” he adds.
It looks like ECI has realized there is no sufficient reason. After all, there won't be any exits. “Actually, exits are still possible, to a degree,” Biron explains. “A division can also make an exit. It doesn’t have to be a company. If people are still interested in Inovia, for example, assuming it becomes a separate division, they can acquire the division.”
Published by Globes [online] - www.globes.co.il - on November 18, 2002