Clarity of Vision: Clarify Sold to Amdocs by Nortel

Event Summary

On Tuesday, October 2, Clarify's short-lived presence under the Nortel Networks (NYSE: NT) umbrella came to an end, as Amdocs Limited of St. Louis (NYSE: DOX), announced that it reached an agreement with Nortel to acquire the assets of Nortel's Clarify division for $200 million. Clarify was purchased almost two years ago by Nortel for what now appears to have been a monumental sum, $2.1 billion, in the assumed hope that Nortel could forge some sort of synergistic package between Clarify's CRM software suite and Nortel's Call Center hardware components (see Nortel and Clarify: Was There Ever Synergy Enough to Support this Marriage?). But Nortel, recently going through some very difficult fiscal times, has been slashing headcount and eliminating entire business units in its drive back towards profitability.

Clarify was served notice in June of 2001 by John Roth, President and CEO of Nortel, who commented at the time that it was Nortel's plan: "to streamline our business around our core growth areas of Metro Optical, Optical Long Haul, Wireless Internet, Core IP/Intelligent Internet and Internet Telephony; and to focus our investments to deliver the key next generation networking solutions," notably NOT listing CRM software as one of their "core growth areas."

Amdocs bills itself as "the world's leader in customer care, billing and order management solutions for the communications industry." With the acquisition of Clarify, Amdocs expects to be positioned as the "world's leading provider of CRM to the communications industry." Notes Avi Naor, President and Chief Executive Officer of Amdocs: "The acquisition of Clarify immediately expands our current offerings and market presence in communications CRM With our complementary product sets, communications-specific functionality and powerful delivery capabilities, we offer the number one CRM solution for the communications industry." Amdocs will establish a new CRM division, to be located at Clarify's headquarters in San Jose, CA.

Mr. Naor provided the following rationale for the Clarify purchase:

1. Amdocs had already successfully integrated Clarify's CRM products with its own at leading communications companies, and the two companies were already moving toward the same technology base; namely, Enterprise Java Beans (EJB) and Java 2 Enterprise Edition (J2EE), making full integration between the two technology bases quick and straightforward.
   
   
2. Amdocs feels the synergies between the two companies' offerings are strong, and, with the Clarify acquisition, Amdocs can position itself as a one-stop shop for pre-integrated CRM and billing functionality, directly linking front-office to back-office systems, positioning the Amdocs solution as "the best-in-class and most widely-used CRM solution for communications."
   
   
3. Clarify's own customer list includes over 250 communications service providers (CSPs), among them Sprint, NTT, and Global Crossing. Acquiring Clarify extends Amdocs' customer base among communications providers, its sole focus.
   
   
4. The two companies' business cultures are similar, and integration between the two companies would be relatively straightforward.
   
   
5. CRM functionality had already been on Amdocs' product roadmap, so the acquisition of Clarify cuts Amdocs' R&D time and expense and gives them proven CRM solutions today.

The key assets of Clarify that Amdocs lists include:

1. Product. Clarify's "scalable and leading edge" software" is well-substantiated in both the communications and general enterprise markets.
   
   
2. Market Presence. Currently, 45% of Clarify's revenues comes from the communications sector, adding to Amdocs already considerable position in the sector.
   
   
3. Employee Base. Amdocs expects that 100+ of Clarify employees will sign on as part of the conversion process, though when pressed in the analyst briefing, Mr. Naor said he expected that "there would be a significant reduction from the current levels. There are about 1,200 engineers right now, and we expect to cut the number in about half." So, assume anywhere from 100 to 600 engineers to come over to Amdocs. Most other departments, including sales and marketing and admin functions, will likely be eliminated.
   
   
4. Partner Relationships. Clarify has relationships with the likes of Accenture and CAP Gemini that Amdocs expects to be able to take advantage of in its business moving forward.

Mr. Naor made clear the notion that the key reason for acquiring Clarify was to enhance Amdocs' position as a leading software vendor to the Communications industry. He also made pains to state that there would be both communications-specific versions of Clarify modules that would be fully integrated with Amdocs modules, as well as standalone Clarify CRM modules that would continue to be supported and sold to the general enterprise market.

Mr. Naor also stated that the strategic plan for on-going support for Clarify in the enterprise market would fall to "strategic partners," or possibly to a single partner if one could be found to take the whole of the support. He mentioned Accenture as one partner option, but did not identify any specific partners that have signed on at this stage.

Finally, concerning the financial impact of the purchase, Mr. Naor stated that he expects the Clarify division to contribute approximately $100 million to the top line in fiscal 2002 which started October 1, with overall Amdocs, including Clarify, to generate $1.9 billion in revenues, amounting to earning per share of $1.52, supporting over 8,000 employees. Of the $100 million to be generated by Clarify, Amdocs expects only one quarter of this amount, or 25%, to be derived from the enterprise market, the balance being derived from the communications market.

Market Impact

For communications companies, the message is clear: Amdocs was a strong leader in customer care and billing applications, and with the Clarify acquisition, they position themselves well as a complete, front-office solution in the communications arena. Communications companies who are already customers of either Amdocs or Clarify should be very encouraged by the purchase, and can anticipate a unified CRM offering tailored to the communications industry in the months to come.

For the rest of the Clarify customer space, the outlook is not rosy. Mr. Naor went to great pains to indicate that there will, indeed, continue to be a standalone Clarify product that is viable for the general enterprise market. He also indicated that his company has always been dedicated to the customer, and has acknowledged that Clarify currently has big business in the enterprise space, and that Amdocs is committed to making a smooth transition to a "partner-centric" support approach over the next 12 months. But both statements were painfully short on detail and are sure to leave Clarify's considerable installed base in the enterprise market feeling cold.

With every statement of concern towards the enterprise market, Mr. Naor countered himself by stating and re-stating that the Amdocs' core focus is, and will continue to be, the communications industry. Explaining that there will be a standalone version of Clarify more generally available indicates to us only the notion that, whatever pieces of Clarify functionality that are developed for the communications space in the future will "leak over to the generalized version" as appropriate. We don't expect to see enterprise, or other verticals, targeted for new application functionality support in the Amdocs era.

It is our belief that Amdocs is hoping, ultimately, to bifurcate the Clarify code base, and find another company, preferably one already involved in some level of Clarify support or implementation activities, to take on both the enterprise code base as well as the enterprise customer base, helping Amdocs rid themselves of the overhang of Clarify's previous focus. But the fact that such a company has not been found, and that none jumps immediately to mind as a likely participant in such a transition, gives us pause.

User Recommendations

Communications Service Providers (CSPs) should be encouraged by the planned integration between Amdocs and Clarify modules. They should definitely take a look at the benefits they can gain from such an integrated approach to the front office, specifically tailored to their needs.

If you are a current Clarify customer not in the communications space, time will tell what level of support, both for bug fixes, new functionality, and general call support, you will receive. But the ill-defined nature of Amdocs' plans for your group does not bode well. Keep a keen ear out for movement, and start scoping out some alternatives, if you plan on keeping pace. .

If you are neither of the above, Clarify should clearly no longer be on your list of viable alternatives to consider in the CRM space. This former Tier 1 CRM generalist is slimming down and focusing in on communications, and there are simply too many other very good general and customizable packages on the market now to get involved here.