Comverse maintains 2001 guidance

3 min read

Comverse Technology's latest report would seem to belie a steep slowdown in the U.S. economy.

"Our business continues to be good," said Kobi Alexander, chairman and CEO of Comverse.

The vendor of systems for call centers and enhanced telecom services on Tuesday reported better-than-expected fourth-quarter results and predicted that results for fiscal 2001 would essentially be in line with current consensus estimates.

During a conference call with analysts, Comverse Vice President Paul Baker set a fiscal 2001 earnings target of $1.78 per share on revenue of $1.52 billion.

Analyst consensus predicted a profit of $1.78 per share on revenue of $1.69 billion, according to earnings tracking firm First Call.

Shares of Comverse traded at $74.31 in after-hours activity on the Island ECN, immediately following the release of quarterly results. Comverse rose $2.57 to $70 in Tuesday's regular trading ahead of the news.

Comverse wants analysts to be cautious and stick with their current estimates, executives said.

"Our guidance is consistent with the growth rate set forth by the last few quarters, while at the same time mindful of current economic conditions," Baker said.

With many technology companies cutting projections these days, Comverse's confidence in current estimates is encouraging, said Hampton Adams, analyst with CIBC World Markets.

"In this market, any company that beats the numbers and maintains guidance is better than 99 percent of the stocks out there," Adams said.

Comverse posted fiscal fourth-quarter net income of $76.9 million, or 41 cents per share. Analysts polled by First Call produced estimates ranging from 38 cents to 48 cents per share, and averaging 39 cents per share.

Fourth-quarter revenue increased 9 percent sequentially to $346.6 million. First Call consensus predicted fourth-quarter sales of $329.9 million.

About 84 percent of Comverse's revenue came from its network-systems division, whose products enable communications vendors sell services such as voicemail. More than 80 percent of sales from that network systems unit came from wireless communications providers.

Despite the slowing U.S. economy, Comverse increased its year-over-year revenue growth rate in the fourth quarter, to more than 37 percent from 30 percent in the comparable period a year earlier. Comverse's revenue, based on how much the company's services are used, grows even if wireless handset sales don't increase, analysts and executives said.

"They have lots of revenue visibility because their revenue is based on usage," said Adams, who has a "strong buy" rating on the stock. "As usage increases from their customers, they get incremental revenue. They don't have to make new sales every quarter."

Even if Comverse doesn't sign up many customers, the company can boost sales by introducing new services to the existing customer base, Adams said. And communications providers are often willing to add new services such as text-messages and news headlines for wireless phones because Comverse's technology can be used with existing networks.

As a result, Comverse doesn't feel the effects of a telecom capital spending slowdown as much as other industry suppliers, Adams said.

Delays in rolling out next-generation wireless networks actually help Comverse, Adams said. It gives the company more time to roll out new offerings while generating steady revenue from older networks, where there is no competition, he said. "Comverse is pretty well-positioned."

For the full fiscal year, Comverse earned $264 million, or $1.47 per share, on revenue of $1.2 billion.