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:
- 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.
- 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."
- 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.
- The two
companies' business cultures are similar, and integration between the
two companies would be relatively straightforward.
- 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:
- Product.
Clarify's "scalable and leading edge" software" is well-substantiated
in both the communications and general enterprise markets.
- Market
Presence. Currently, 45% of Clarify's revenues comes from the communications
sector, adding to Amdocs already considerable position in the sector.
- 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.
- 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.