Comverse Technology, Inc. History

Address:

170 Crossways Park Drive
Woodbury, New York 11797
U.S.A.

Telephone: (516) 677-7200
Fax: (516) 677-7355

Public Company
Incorporated: 1984
Employees: 840
Sales: $98.84 million (1994)
Stock Exchanges: NASDAQ
SICs: 3577 Computer Peripheral Equipment, Not Elsewhere Classified; 3669 Communications Equipment, Not Elsewhere Classified; 7373 Computer Integrated Systems Design

Company History:

Comverse Technology, Inc. designs, develops, manufactures, and markets computer and telecommunications systems for specialty multimedia communications and information processing applications. The company sells its products through an international sales force and had installed its gear in more than 30 countries by 1995. Comverse was growing rapidly in the mid-1990s by expanding internationally and by introducing new technology to the marketplace.

Kobi Alexander founded Comverse Technology in 1984. A native of Israel, Alexander had studied economics in Tel Aviv before moving to New York in the early 1980s. He enrolled at New York University but also found a job as an investment banker at Shearson Lehman. Alexander worked full-time at Shearson and earned his Masters of Business Administration at night. Alexander had always wanted to run his own business, but he didn't expect an opportunity to arise so early. In 1982, Alexander met Boaz Misholi, an Israeli engineer who had an idea for a business venture. "The week after I met him, I resigned from Shearson," Alexander recalled in the June 18, 1990, Newsday. "I always knew I wanted to have my own company."

Misholi's idea was to develop a voice and fax messaging system that would allow customers to store, process, access, and transmit information from any telephone or fax machine. The system would offer a far more comprehensive alternative to answering machines and other rudimentary gear available at the time. Misholi and Alexander recruited some engineers to help them develop the system. They also moved to their native Israel, where the national government was awarding subsidies to high-technology start-up companies.

In Israel, Alexander and Misholi operated their venture as Efrat Future Technology Ltd. It took the company just a few years to design and develop a marketable messaging system. Alexander and Misholi worked with the development team in Israel for two years. Joining them was Alexander's brother-in-law, Yechiam Yemini, who served as the company's chief scientist. In 1984, Alexander, Yemini, and Misholi moved back to New York to begin laying the groundwork for an infrastructure through which they could market their product once it was ready to sell.

The three partners set up a company in Woodbury, New York, called Comverse (a fusion of "communication" and "versatility"). In fact, that enterprise became the parent company of Israel-based Efrat Future Technology, Ltd. Comverse was incorporated in New York in 1984. The company generated sales of a few million dollars annually during its first three full years of operations. Net losses during the period were only slightly less than the company's sales volume because of expenses related to marketing and ongoing research and development. To raise additional investment capital, Comverse went public on the New York Stock Exchange in 1986.

The product that Comverse began marketing in the late 1980s looked like a simple box. Inside the case, though, was a complex multimicroprocessor computer. The computer, when hooked to a customer's telephone line, was capable of performing a number of information-management functions related to voice and fax messaging, as well as call processing. For example, it could store incoming and outgoing messages for different people in personal "mailboxes." Although similar products were on the market at the time, Comverse claimed to be the first company to integrate voice, fax, and call processing functions into a single system.

Misholi served as president and chief executive of Comverse in 1986 and 1987. In 1988 he resigned to pursue other interests and later became a professor of computer science at Columbia University. Alexander stepped up to assume the helm, still aided by Yemini. Alexander realized that, because his tiny company was participating in an industry dominated by such telecommunications technology giants as AT&T, he would have to devise a savvy marketing strategy if he wanted to compete successfully. To that end, he decided early to target the international market, particularly in Europe. With the European economic unification scheduled for 1992, Alexander reasoned, Comverse could benefit by developing an early lead in its niche on that continent.

Specifically, Alexander and fellow executives succeeded during the late 1980s in securing exclusive relationships with several of the top equipment distributors in Europe. Between 1987 and 1990, Comverse signed marketing agreements with six large European distributors who had already established cozy relationships with governments and major equipment buyers. Those agreements gave Comverse an edge over larger rivals, because the distributors often learned of potential deals before Comverse or its rivals. That allowed Comverse to begin pushing its product early in the decision-making process. Among the companies that had agreed to distribute Comverse systems were Ascom (Switzerland), GPT (United Kingdom and Australia), Voice Data Systems (Holland), and Oki (Japan).

For example, the sixth major distributor that latched onto Comverse in the late 1980s was Nokia Data Systems, an electronics products distributor based in Helsinki, Finland. Nokia Data was a member of the $5-billion Nokia Group, the world's largest manufacturer of mobile phones and cable machines. The agreement was important for Comverse because it made the company Nokia's exclusive provider of messaging equipment. Nokia enjoyed a close relationship with the Finnish national telephone company and provided Comverse with a strong link to parts of Europe and the Soviet Bloc that were relatively inaccessible through other marketing channels. Indeed, Comverse was banking on such emerging regions as the former Eastern Bloc to drive industry growth in the long-term.

An example of the wisdom of Comverse's European marketing strategy was a contract worth up to $10 million awarded to Comverse in 1990 by the German government. The German post office, or Deutsch Bundespost, was accepting bids to supply messaging systems for German cellular telephone users. Competing for the contract were such telecommunications and computer giants as AT&T, Hewlett-Packard, the Netherlands' Alcatel, and Germany-based Siemens. Comverse was aided in the bidding process by Ascom Gfeller, a large Swiss distributor with which it had signed an agreement in the late 1980s. The giant contract--by far the largest ever captured by Comverse--gave the company instant recognition as a contender in the market for messaging systems.

The system that Comverse had developed during the 1980s and agreed to supply to the Deutsch Bundespost was dubbed the "Trilogue." The German government was going to use the Trilogue Message Management System to store messages for cellular telephone users. When callers failed to connect with a cellular phone user, they could leave a message in the user's "mailbox" for later voice or fax retrieval, or remote paging. By the time it landed the big contract, Comverse had sold only about 300 Trilogue systems, mostly in the United States. It was also licensing some European telecommunications companies to sell Comverse gear under their brand names. The German government, though, planned to install enough Trilogue systems to create 100,000 mailboxes for cellular phone customers.

Before Comverse landed the $10 million German contract, it was employing about 150 people, roughly 40 of whom were located at the U.S. Comverse headquarters and the rest in Israel. The company performed most of its research, development, and manufacturing in Israel, then assembled, marketed, and distributed the systems from its New York headquarters. Most of the equipment was shipped to Europe. In fact, the percentage of its products shipped overseas had grown from ten percent in 1987 to about 80 percent by 1990. Comverse's U.S. sales were mostly to domestic telephone companies, particularly the wireless divisions of the Regional Bell Operating Companies and independent cellular companies like PacTel and McCaw.

Largely in response to the German deal, but also to subsequent contracts, Comverse began adding staff and beefing up operations in the early 1990s. Sales increased to nearly $16 million in 1990 and then to more than $21 million in 1991. After posting its first positive net income in 1989 (of $380,000), Comverse's profit rose to nearly $3 million in 1991. Augmenting growth in sales of its proven Trilogue systems were other technologies being developed and marketed by Comverse. In 1990, for instance, it started selling a product called FaxLogue, a Trilogue add-on system that provided a wide range of options for sending, receiving, and storing facsimile messages. The technology was first implemented by US West Communications, a Regional Bell Operating Company.

A series of developments during the early 1990s combined to rapidly boost Comverse's revenue and profit. In 1991, for example, Comverse agreed to purchase (in 1992) the assets of Startel Corp., which became a subsidiary of Comverse. Based in Irvine, California, Startel was a leading supplier of transaction processing systems used mostly by the telephone answering service industry, hospitals, and corporate message centers. The acquisition brought important new technology to Comverse's research and development lab and gave it access to a new segment of the market.

Likewise, Comverse scored a big victory late in 1992 when it reached an agreement with global communications giant AT&T for that company to offer Comverse's multilingual voice-processing system to corporate customers and telecommunications providers outside of the United States. The deal was a huge boon for Comverse because it represented an endorsement of its technology by the communications industry leader. The agreement gave AT&T the right to market Comverse's Trilogue and newer Trilogue Infinity products. Among the systems' newer features was a "virtual telephone" feature that allowed residents in developing countries to have a telephone number without actually owning a telephone or paying for a separate line. AT&T planned to market the technology in 60 countries by 1996.

In addition to marketing successes, Comverse continued to profit from the development and introduction of cutting-edge technology. Going into the mid-1990s, its Trilogue systems featured a number of sophisticated features. For example, newer Trilogue units incorporated multilingual speech recognition that allowed users to control their messaging functions by speaking commands in their native language. Other complex functions allowed Comverse's gear to support a variety of protocols and equipment and to minimize communication costs and maximize the efficiency of information flow.

As important as advances in its core Trilogue product division was the success of a completely different line of technology called AudioDisk. Comverse had developed AudioDisk in the late 1980s and started marketing it in the early 1990s. It assumed a much lower public profile than Trilogue, however, because the AudioDisk systems were marketed primarily to police and intelligence organizations. Therefore, the company was comparatively discreet about sales of the units. AudioDisk systems enabled police and intelligence gatherers--but also public health, safety, and financial institutions, for example--a much-improved alternative to wire-tapping, which traditionally relied on reel-to-reel tape. AudioDisk used digital technology to simultaneously monitor hundreds of telephone and fax lines and retrieve data instantly.

Although it had received much less public attention than the Trilogue line, AudioDisk systems were accounting for about 50 percent of Comverse's total revenue base in 1993. Furthermore, growth prospects for that market were extremely favorable. Sales gains in the AudioDisk division amplified hefty gains in Trilogue shipments, which were driven largely by rapid international growth from Asia to Europe. The end result for Comverse was rapid expansion into the mid-1990s. Sales rose to $37.5 million in 1992 before more than doubling in 1993, while net income increased to nearly $15 million. In 1994, moreover, Comverse managed to boost revenues more than 40 percent to $98.84 million. Comverse continued to benefit in 1995 by increasing its share of the rapidly growing niche markets that it served.

Principal Subsidiaries: Efrat Future Technology, Ltd.; Startel Corp.; Applied Silicon Inc. (Canada); Telemesser Ltd.; DGM&S, Inc.

Principal Divisions: Trilogue Product Family; AudioDisk Product Family.

Comverse Technology, Inc. History

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