Voicemail Maker Gets the Message
The recent plunge in the stock of Santa Barbara-based Digital Sound Corp. appears to suggest that the firm is an endangered player in the booming voicemail business.
But industry analysts and Digital’s own customers doubt that the company’s problems are anything more than temporary. Digital remains a highly respected competitor in voicemail technology; it just has to relearn how to market its leading-edge equipment, industry experts say.
Wall Street’s collective decision Monday to knock Digital’s stock to $5 from $9.25--on word that the firm may post a second-quarter loss--wasn’t all that surprising, given the market’s unforgiving attitude toward high-tech stocks this year. After falling another 50 cents Tuesday, Digital stabilized Thursday, rising 12.5 cents to $4.625. The company went public Feb. 26, selling 5.4 million shares at $8.50 apiece.
Digital is just the latest voicemail stock casualty. Many of the smaller players in the field have seen their stocks squashed this year on investors’ concern about a possible industry shakeout.
Voicemail is a catchall term for new telecommunications services that use computers to replace human phone operators. The systems electronically direct calls, take messages and allow users to get their messages when they’re away from the office. On the horizon are many more sophisticated uses, including the ability to store personal fax messages for later retrieval.
It’s all exciting technology. But as the number of voicemail applications--and suppliers--has soared, so has customer confusion. “Customers are taking longer to decide what they want,” says Bryan Grummon, Digital’s 43-year-old chief executive. It was Digital’s inability to close some key orders in the quarter ended June 30 that led to its Monday announcement of possible red ink.
Digital’s sales problem was compounded by its one big weakness, analysts say: the lack of a national direct sales force. Despite a “very strong” product, “Digital has always been criticized for its marketing capabilities,” said Steven D. Levy, analyst at Hambrecht & Quist in San Francisco.
Grummon admits that “last year came too easy to us,” as the company pulled in $28 million in revenue and earned $4 million, or 25 cents a share. He also admits that Digital has long had “too few salesmen.”
That’s what Digital is trying to fix now. The firm’s vice president for sales quit at the end of May as Grummon shifted gears. Digital has been hiring at least one new salesperson a week, Grummon says, and “it’ll be another month or so before we get the sales force up” to the right level.
Digital needs that sales force so that it can further develop one of its two key markets: companies that want on-premise voicemail systems. Digital’s other key market is the regional phone firms, which buy voicemail systems so they can market those services to their customers.
The phone companies say there’s no question about the quality of Digital’s voicemail technology, and Digital is a keen competitor of Octel Communications, the industry leader. “We’re happy with Digital,” says Jack Appel, technology chief for Pacific Bell’s information services group.
Digital’s machines allow PacBell to offer voicemail services to business customers. The next step for PacBell is to bring voicemail to residential customers as a replacement for answering machines. Those services should be widely available in Los Angeles and San Francisco in the next six months, Appel said. Linking business and residential services in the same network “is one thing we’re talking to Digital about now,” he said.
US West, the regional firm serving much of the West, now offers residential voicemail in key cities (price: $6.95 a month), and is expanding it region-wide, said Dave Stockton, Phoenix-based manager for the project. US West has used Octel so far, “but we’re now doing some other vendor interviewing, including Digital,” Stockton said.
The big question is how fast Digital’s new marketing force can get sales back on track. A federal court decision in June won’t help: The decision handed back to the states, from the federal government, the regulation of new phone services such as voicemail. That may lengthen approval times and phone companies’ expansion plans.
Grummon admits that “the third quarter is still going to be pretty tough.” Which means that Digital may end up just breaking even for the year--a good reason for the stock to stay around $5 for a while. But if Digital’s sales don’t surge again by later this year--taking the stock up with them--there will be a lot of very surprised folks in the telecommunications industry.
BATTERED VOICEMAIL STOCKS Most companies that provide voicemail equipment have seen their stocks trashed this year.
52-week Thurs. Pct. change Stock high/low close year to date* Aspect Telecomm. $20 1/4-$15 $20 1/4 +40% Syntellect 24 1/8-16 7/8 20 7/8 +39% Digital Systems 24 1/4-21 1/2 22 1/4 +24% Octel Communications 27 3/4-17 7/8 21 1/8 -4% Boston Technology 14 3/8-4 1/2 5 3/4 -28% VMX Inc. 4-1 1 5/8 -28% InterVoice 34-17 18 3/4 -30% Digital Sound 11-4 4 5/8 -46% Brite Voice Systems 14 1/4-4 4 5/8 -48%
* since Dec. 31 or since initial stock offering this year
