Tekelec’s Fortunes Return to a Greener Hue
When Tekelec chose a chameleon as its logo a year ago, executives thought it would remind their customers--primarily telephone companies--how quickly Tekelec’s communications and computer test equipment could adapt to constantly changing technologies.
What management didn’t reckon was how apt the chameleon would be to represent the company’s erratic financial performance, which has covered the spectrum from big losses to even bigger profits in only a few quarters.
Right now, Tekelec, based in Calabasas, is a lot closer to the color of money than it’s ever been. For the three months that ended March 31, net income was up 12-fold to $1.1 million, or 28 cents a share, compared to a year earlier, as revenue increased 85% to $6.7 million. The first-quarter profits outdistanced what Tekelec earned for all of 1987 when profits were $749,000, or 20 cents a share, on revenue of $17 million.
And the company’s stock reflects the recent upswing in orders. By January of this year it was trading as low as $3.75, but on Monday it closed at $14.75.
Behind Tekelec’s sudden strong showing is a product called the Chameleon 32, a box about the size of a personal computer that costs at least $21,500 and is used to detect problems in an experimental telecommunications system, called Integrated Services Digital Network, or ISDN, being tested by various phone companies and major corporations including Illinois Bell Telephone and McDonald’s.
Now in the development stage by various phone companies, ISDN essentially would allow someone to send simultaneous voice, data and video information over a single telephone line. The idea is that by having an all-encompassing transmission line, all of the office machines could be hooked into the phone lines, making it easy for corporations to send data back and forth among their computers, something that isn’t so easy to manage today.
Simultaneous Uses
So a travel agent, for example, could talk to a customer on the phone and simultaneously send him airline reservations to be viewed on a computer terminal at his desk, without interrupting their conversation. Or somebody could receive a telefax of a document at his desk, instead of running off to another floor to get it.
Somewhere between 60% and 75% of Tekelec’s first-quarter sales, said President Peter Vicars, stemmed from the Chameleon 32. Vicars, who took office just over a year ago, said the first-quarter results are proof that the company has overcome its problems.
But the ISDN trials are expected to last for years, and no one is sure whether ISDN will develop into a full-fledged market. The premise behind ISDN is to consolidate office communications, but analysts question whether the expense involved would really pay off in added productivity.
“The market for it has not yet been proven,” said Edward Hird, a Vancouver, Canada, telecommunications consultant. “There is a lot of hype about it being the answer to a maiden’s prayer.”
ISDN’s uncertain future is a problem for Tekelec. “Things are great now, and they look pretty good over the next year, but I think Tekelec will have to move into some other areas to sustain this growth,” said Charles Nichols, an analyst with the New York brokerage Bear, Stearns & Co.
Yet another worry--Vicars and analysts say mighty computer giant Hewlett-Packard will start selling an ISDN testing package similar to Tekelec’s model within the year. “H-P is always a strong competitor,” Vicars admitted. A spokesman for Hewlett-Packard said the company has made no announcement about an ISDN testing package but also said projects under development by the company are never discussed publicly.
Tekelec’s Chameleon 32 device tests the communications channels between computers to make sure the data will arrive and arrive accurately at its specified destination. For example, Tekelec’s Chameleon makes sure the computers will obey instructions and send information to the correct office, say IBM’s office in Boca Raton, Fla., and not Burger King’s office in Miami.
Vicars was brought in to run the company a year ago after founder Philip Black decided Tekelec had gotten too big for him to manage. Vicars’ task is to steer the company into profitable product lines.
Tekelec’s more traditional products test transmissions by computers and telephones. The testers check the channels and the strength of voice signals that move between telephones. Telephone signals sent by microwaves can be affected by temperature or other environmental factors, causing the signals to fade. A Tekelec tester can find the problem and restore the signals to full strength.
In the past, Tekelec has bet heavily on other new technologies that didn’t sell as well as expected. Several years ago, Tekelec had developed a testing system for Manufacturing Automation Protocol, also called MAP, which was part of the factory-of-the-future concept. Tekelec’s product tested a telecommunications system which enabled computers to tell robots what to do on the factory floor.
“I think a lot of people were extremely excited about MAP. It was something that was being talked about very, very strongly in the marketplace as an opportunity and Tekelec took a position,” Vicars said. “MAP never came about, and a number of companies got hurt by that including Tekelec.”
Tekelec ended up writing off $393,000 in connection with its MAP-related products and research.
But Vicars insists ISDN is different. “The commitment by the telephone companies is too, too large,” he said.
