Sync Research Signs Sales Contract With IBM
Sync Research Inc., whose stock was one of 1995’s hottest public offerings but has gone ice-cold since then, said Wednesday that it has signed what could be a lucrative agreement to sell some of its products under the IBM name.
Sync’s stock shot up 29% on heavy trading after the deal was announced, closing at $16.75 per share, even though the good news was tempered by the company’s disclosure that it expects its quarterly sales to fall 15% to 25% short of analysts’ estimates and will likely post a loss.
Irvine-based Sync makes devices that enable aging IBM mainframe computer networks to send information the way modern networks do, taking advantage of advances in telecommunications technology that make data transmission cheaper and faster.
The company’s products have long had IBM’s approval, but the relationship between the two companies will be much tighter under the new deal. From now on, Sync’s devices will not only be offered by IBM but will bear its brand name and be recommended to the computer giant’s huge roster of corporate customers.
“Essentially, it’s an IBM product,” said John Rademaker, chief executive of Sync Research. “It will be substantially easier for IBM sales representatives to sell it because it comes with all the IBM product benefits.”
For the first time, IBM salespeople will be rewarded for selling Sync’s devices because they will count toward sales quotas and commissions, Rademaker said.
Industry analysts said the deal is a coup for Sync, a young and relatively small company competing against computer networking powerhouses such as San Jose-based Cisco Systems.
“It’s new and it’s very important,” Paul Johnson, an analyst at Robertson, Stephens & Co. in New York, said of the IBM deal. “It’s a much bigger commitment on IBM’s part.”
The agreement is not likely to boost sales dramatically this year, but could mean an additional $10 million in revenue next year, Johnson said. That would be a 40% increase based on expectations that Sync will post sales of $25 million this year.
The news of the IBM deal seemed to provide at least temporary relief for Sync Research’s sliding stock, which had plunged from a high of $56 per share on Dec. 5 to an all-time low of $12.25 per share in trading early Wednesday.
Sync also said that its first-quarter sales are likely to fall short of analysts’ estimates of about $8 million, resulting in a quarterly loss.
The stumble is related to a faster than expected slowdown in demand for the older of Sync’s two networking products. Analysts said they were surprised by the news but they shrugged it off, saying the company’s newest product, which is more important to Sync’s long-term prospects, is selling better than expected.
Rademaker echoed analysts’ remarks. “Though we are disappointed with overall near-term results,” he said, “we are very encouraged by recent market demand for our [new] product and our associated long-term prospects.”
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Back in Sync
Wall Street reacted positively to the news that some of Sync Research’s products will be sold under the IBM name. Weekly closing stock prices:
1995
Nov. 10: $44.00
Began trading
Wednesday close: $16.75
Source: Dow Jones Information Service
