Technology company Allot Communications Ltd.'s (Nasdaq:ALLT; TASE: ALLT) annual revenue has declined for three consecutive years. 2018 is supposed to be a turning point, in which the company is projecting 11-16% growth.
Positive indications began appearing in the company's 2017 reports, with a rise in the orders backlog and 40% growth in revenue from security. Allot, which began as a company improving the use of core network communications equipment, is currently positioning itself as a provider of security solutions for communications operators, its main growth engine right now.
"Allot is aiming at a market that is going to be huge, and it has a substantial advantage over everyone else," Allot president and CEO Erez Antebi tells "Globes" one year after replacing Andrei Elefant as CEO.
"Globes": The cyber market is huge. What is your advantage in it?
Antebi: "When you look at who's protecting us against cyber attacks, it's clear that in companies, the IT departments are responsible, and have experts to handle it. There's a yawning gap here, because the need for protection is growing and the number of threats is increasing. On the other hand, the vast majority of people don't realize this.
"The problem is becoming more acute as people put Internet of Things (IoT) devices in their homes. For example, they put a camera in their child's room, and then it turns out that someone hacked the camera and is streaming the video from it to some website. This equation won't stay like this for long, and there's an opportunity to take responsibility for providing comprehensive security services to a person at home.
"In my opinion, the communications companies are in the best position to do something. In any case, when every device is connected to the Internet, the devices go through the companies' network, and the companies can offer security service. The fact that Allot has basic technology inside the networks capable of analyzing everything that passes through them enables us to provide the service and filter out harmful things."
What will keep large cyber security companies, such as Check Point, from taking over the market in the future?
"When the market really starts taking off, competitors will begin coming from the conventional security sector, and from communications equipment. Check Point is an excellent company, but without commenting on it specifically, I believe that unless a company is familiar with communications operators and is able to operate within the network and work at such speeds, it will have a long way to go. This is a difficult technological barrier. It's not totally impassable, but it's not something you can do in two or three weeks.
"It's a big market, and there will be several players, but Allot has an advantage. It's not something that's going to happen in a decade; it's happening now. Vodafone, Telefonica, and Pelephone Communications Ltd. are already using our technology."
"A market of tens of billions of dollars a year"
Antebi believes that the cyber security market has the potential to increase communications operators' revenue by 5-10%. The operators are in a tough spot, because they are having trouble increasing their average revenue per subscriber and need to make huge infrastructure investments. "They are singling out security as a growth engine that will rescue them from this dilemma," he says. "It's a market of tens of billions of dollars a year. If Allot takes a 10% market share, for us, that's a multi-billion dollar market emerging."
Vodafone, for example, has launched a security service based on Allot's technology that costs €1 per month per customer, and has obtained a 45-50% market share in Spain and Italy. Allot's goal is to switch to a model in which communications operators pay it for an annual license, which will increase Allot's visibility.
What about Allot's regular business - are you giving it up?
"No. That business accounted for 70% of revenue in 2017, but I don't see this market growing. The entire market of control over what is done on the network amounts to less than $1 billion a year, and there are strong competitors. We see no growth, but we do see a change in the kind of applications. There are technologically interesting things, such as surveillance of activity by criminal organizations in order to enable the law authorities to deal with them effectively, but the market's size isn't changing. Our sales there will remain stable or increase slightly, but no more than that."
Allot's regular business also involves the ability of communications operators to control, accelerate, and slow down entry to websites in accordance with economic interests.
The "Internet neutrality: regulations in the US were changed last December to allow communications operators to do this. Is there potential for your company in this?
"It has the potential to help us, and if large companies decide to start distinguishing between applications, there will be major potential in it for us. At the same time, right now, it looks like they aren't so eager to do this. It could change, but it won't happen right away."
In recent years, people thought that Allot wanted to be acquired.
"As in any public company, it's something that can happen. There's talk about it sometimes, but in my opinion, the company's value can be increased a lot more, and this isn't because we're looking into it now."
Was there an attempt to sell the company?
"There hasn't been any attempt in the year that I've been here. I can't say about what went before."
Did you have any offers during the year?
"There was no serious offer. There's always talk, but there was no offer."
So you aren't managing the company in the direction of a sale?
"No. The company has a golden opportunity to grow within a very big market in which Allot has a significant advantage over the competition, and is far ahead of it. Personally, I've seen a lot of companies since I left Gilat Satellite Networks (which he previously managed, S.H.-V.). In Allot, I found a super-interesting combination that you almost never find in other companies: very strong technology with an entry barrier, a large customer base, a growing market, money in the bank to take advantage of it, and of course excellent people. This is a rare combination, so in my opinion, Allot is an exciting company with an interesting future"
Allot has quite a bit of money - $110 million, amounting to 66% of its market cap. This could indicate that the capital market's trust in Allot has not yet been restored.
"My job is to bring the company to major growth, business achievements, and, of course, profits," Antebi says. "I hope that the capital market comes to trust us later."
Published by Globes [online], Israel Business News - www.globes-online.com - on February 12, 2018
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