Corporate Profile and Strategy
Formed in 1982, Amdocs Limited (DOX) is a leading provider of customer relationship management (CRM) and billing software to communications service providers. The company began as a manufacturer of telephone directory publishing technologies in Israel. It has since completed several well-timed acquisitions including ITDS (in 1999), Solect (in 2000), Clarify (from Nortel in 2001) and Certen (from its partner, Bell Canada, in 2003). All of these acquisitions complemented its original business. Most importantly, Amdocs has successfully combined its core billing and rating technology with Clarify's customer relationship management software to emerge as a leader in business support systems. The company also acquired XACCT (in 2004), DST Innovis (in 2005) and Longshine Information Technology (in August 2005). On April, 2006, the company purchased QPass, which established Amdocs as the market leader in the digital content segment. In August, 2006, Amdocs acquired Cramer Systems Group Ltd, a well known provider of Operating Support System solutions with more than 80 large customers, worldwide. Amdoc's most recent acquisition of SigValue significantly expanded the company's presence in the emerging markets. Through these acquisitions, Amdocs became a unique vendor as it can provide both end-to-end business support solutions and operating support solutions to the carrier marketplace. In the first quarter of fiscal 2008, Services revenue accounted for 96.5%, and License revenue accounted for the remaining 3.5%.
Innovative Strategy: Amdocs is a beneficiary of the long-term trend toward information technology (IT) outsourcing. The firm's principle marketing efforts continue to be targeted towards leading companies in the communications sector. By offering a "total systems solution," consisting of its integrated customer management products along with its specialized services, Amdocs has been able to steadily gain market share against a handful of competitors. Armed with a healthy backlog of contracts and a solid pipeline of potential deals, the company has continued to foster robust growth since 2005.
Favorable Industry Trend: Amdocs is well positioned in the market as carriers sell bundled and converged IP-based network solutions to their subscribers. These services include cable, wireline, wireless, and high-speed Internet access solutions. As order sizes became larger, carriers started spending more on customer care and billing software. Implementation of integrated customer management systems is essential in order to prevent customer churn at carriers. Amdocs has the largest customer base and the broadest product line in the industry, including a full suit of end-to-end solutions for both Business Support Systems (BSS) and Operations Support Systems (OSS). Amdocs is also winning more than its fair share of contracts as carriers portentously deploy 3G wireless technology. In fiscal 2007, the company launched a new state-of-the-art software suite called Amdocs 7' that provides a single platform capable of supporting the complex requirements of traditional and next-generation triple play voice, video, and data services as its focuses on addressing favorable market trends in the communications industry.
Consolidated Position: While industry consolidation can frequently have an unpleasant ripple effect on suppliers, Amdocs has actually benefited from the recent wave of telecom mergers. One reason is that the company already has relationships with most of the acquiring companies. This puts the company in a visible position to displace smaller vendors when the various disparate billing systems are ultimately combined. Large carriers, including AT&T and Sprint-Nextel, remain customers of Amdocs even after their continued mergers with other established carriers. Furthermore, the company extended its long-term agreement with AT&T by another 4 years to provide IT outsourcing services. Beyond consolidation, the company also has been successful with extending contracts at Bell Canada, DirectTV, and Alltel Wireless.
Continued Growth: During the reported quarter, Amdocs was awarded a series of new key contracts in several international markets. In the past, the company was able to convert its licensing revenue into services revenue. Management is expecting that the acquisition of Cramer Systems will enable Amdocs to more effectively translate the licensing revenue into OSS business offered with the Cramer solutions platform. The company also progressed with respect to the implementation of transformation project at China Mobile Ltd, the largest mobile operator in the world in terms of subscriber count. During the first quarter, the company significantly expanded the scope of its existing 7 years long-term agreement with AT&T to provide cost effective managed care services. This deal may generate up to an additional $200 million of annual revenue. Amdocs also received a major multi-year contract from Sprint-Nextel to support the company's new Internet initiative called "Xohm". These contracts raised total order backlog to $2.3 billion at the end of the reported quarter, up 6% sequentially.
New Vertical Market Segments: Amdocs has established its leadership position in the digital-content market through the acquisition of Qpass. This segment has more than 180 million customers and processed more than 400 million downloads of games, ring-tones, and videos. The acquisition of Cramer System has also made the company the only service provider in the industry that provides end-to-end service fulfillment solutions to the telecom carriers for efficient and cost effective OSS delivery. Its other acquisition of SigValue has significantly expanded Amdocs' presence in the emerging markets of Eastern Europe, Africa, Latin America and Asia, where the telecommunications customer base is predominantly composed of mobile pre-paid subscribers. Beyond telecom opportunities, the company has successfully entered the financial services sector, where the company is demonstrating market traction in both North America and Europe.