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General DataComm Industries Inc.
(NYSE: GDC)
Park Road Extension, Middlebury 06762
Chairman and CEO:
Charles P. Johnson
Revenues (FYE September 30, 1999): $171.0 million
Net Loss (FYE September 30, 1999): ($22.6 million)
Market capitalization: $297.1 million
Employees: 1,118
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Business New Haven
3/6/2000
By: Kristine Hansen
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Compared to the booming baby technology companies that have cropped up within the past few years, General DataComm, a designer and seller of products and services that allow telecommunications and other entities to better handle their global communication network, is a granddaddy.
Founded in 1969, the company recently celebrated its 30th anniversary. But along with this anniversary came a time of big change in the structure of the company, what it appropriately named its Millennium Thirty Strategy.
In recent years the horizontal structure of the company had not been enhancing its performance. Overall trends were negative for the past few years, including a decline in revenues since 1996 along with operating and net losses since 1995.
In its recent reorganization, the company created separate business divisions and changed to a vertical structure to allow for better handling of customer needs. Each business unit thus was given its own general manager, product development, sales, marketing and finance support.
General DataComm's businesses include the company's Network Access Division, which provides products including frame relay and DSL-based products. The Broadband Systems Division sells broadband telecommunications products such as asynchronous transfer mode and time-division multiplexing equipment. The company also created a multimedia division in 1999.
The company's Vital Network Services division was originally formed in 1997 by combining service operations from its regional groups and subsidiaries. The division is a provider of global communications support services to an array of clients including corporations, telephone companies, equipment manufacturers and system integrators. The group offers support for products from several companies and has earned certification as a Cisco Authorized Support Provider and Cisco Professional Services Provider. It is also an authorized provider for such companies as 3Com ADC and Nortel Networks, among others.
Included in the company's restructuring was the sale of its Technology Alliance Group division in late 1998 and, in the middle of last year, the shutdown of a technology center in the UK. To allow itself more time to concentrate on product development and service, the company signed an outsourcing manufacturing agreement in September 1999. Earlier this year General DataComm announced the conversion of $21.5 million of its 7.75-percent convertible senior subordinated debentures into common stock. The transaction is expected to save the company $1.7 million in annual interest expense and reduce the company's debt.
Since the reorganization and newly implemented strategy, 1999 results showed signs of improvement. The company experienced a positive trend of decreased net losses for each quarter of 1999. For the year ended September 30, 1999, an operating loss of $23.7 million represented a seven-percent decrease from the prior year. A net loss of $22.6 million ($1.12 per share) for the year compared favorably to a net loss of $33.4 million for 1998.
Note, however, that the 1999 bottom line was bolstered by a one-time gain on sale of assets of $9.0 million. Also, revenues were down 12 percent for 1999 to $171.0 million compared to $194.3 million for 1998 due largely to reductions in Latin American, Asian and Central American sales.
Results for the first quarter ended December 31, 1999 indicate continued improvement. Quarterly revenues rose 12 percent to $47.6 million, compared to $42.4 million for the same quarter a year before. Operating losses for the quarter declined to $2.3 million, versus $10.4 million for the prior comparable period.
Although the net loss for the quarter was $5.9 million (29 cents per diluted share), versus $3.1 million (16 cents per diluted share) a year before, the company noted that, excluding various one-time charges, the first quarter net loss was $3.9 million (20 cents per share) versus $10.1 million (48 cents per share) for the same quarter in 1998.
Investors have reacted positively to the changes at General DataComm, which has sent its stock price trending upward since November. The stock rose from the $2-$3 range of September/October to the $10-$12 range since the beginning of the year. The stock closed at 11 3/8 on February 22.
Earnings estimates for the fiscal year ending September 30 come in at 50 cents per share. Thus, for this granddaddy, the recent restructuring for General DataComm may offer a new lease on life.
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