Broadband services are a red-hot sector. So why are shares of SoftNet Systems continuing to flounder?
This is undoubtedly the million-dollar question waiting to be answered for SoftNet shareholders. After all, SoftNet shares have collapsed from around $50 a share to the $6 range in the past year.
To make matters worse, the company reported wider than expected quarterly losses last month and was promptly hit with analyst downgrades. Then, the president of one of the company’s three broadband divisions resigned soon after this news.
With all of this gloom and doom out on the table, it would be easy to say that SoftNet is washed up. However, any tech stock trading at a discount to its cash and short-term investments on hand, is usually worth a quick second look.
So with that in mind, we recently caught up with SoftNet CEO and chairman Dr. Lawrence Brilliant, while he was traveling, for a closer look at his company’s long-term plans.
ISR: Why don’t we start off with a brief description of SoftNet’s core businesses today?
Brilliant: SoftNet is a broadband services company. We operate through three divisions – cable, satellite and wireless. The cable division is the one that we’re best known for, although it is increasingly a smaller part of our revenue pie. As we talk, I’m driving by ExciteAtHome .
ISR: Now, there’s an interesting coincidence.
Brilliant: The ISP Channel is similar, but obviously smaller than ExciteAtHome, and it provides high speed Internet over cable. We have 2.4 million homes passed. We have 95 [cable] systems and over 25,000 cable modem subscribers. We have been growing extremely quickly, but we started from a small base. So our growth last quarter was four hundred forty percent! The ISP Channel has specialized in small to medium sized cable operators in rural America or systems that are not part of either AT&T ,
Comcast or the larger chain [cable] systems.
ISR: What about your satellite venture?
Brilliant: Our Intellicom division is high speed broadband over satellite. That was the former Xerox Skyway Network. We purchased it about two years ago. They have about 350 installations around the world. A lot of them are in the Caribbean and South America. We sell high speed Internet over VSAT (very small aperture terminal) installations and typically, while the ISP Channel sells to people at home for $30 a month, Intellicom sells a package where the installation and equipment can cost $8,000-$20,000. Then, we charge $500-$2,000 a month, which provides a T-1 like product typically.
ISR: You announced recently that you would be focused on profitability, instead of growth, for your ISP Channel division. I’m wondering then if this is a precursor to a sale of that unit?
Brilliant: Well, nobody knows what will happen in the future obviously. What we’re trying to do is to be realistic. The ISP Channel is growing extremely quickly. Costs for launching it are significant and the cable consolidation in the country has meant that there just are not 30 million homes passed any longer by independent cable operators as there were two years ago when we raised money for it. Cable consolidation has happened so quickly that the market for an ISP Channel like offering is probably about the size it is right now.
ISR: Right. It does look that way.
Brilliant: So what we want to do is to make it profitable by going through the systems and making sure that we re-negotiate terms with cable operators to make every system profitable. We need to do bulk purchases of connectivity to reduce our costs at our call center, our technical services and add the product lines that we need to increase the revenue line. It’s the things that you would normally do when a company reaches the state of maturity that the ISP Channel has reached.
ISR: Now, on top of Intellicom and ISP Channel, you
went ahead and purchased Laptop Lane and renamed it SoftNet Zone earlier this year. This seems to be a broadband play on travelers?
Brilliant: Well, SoftNet Zone is the most exciting thing that we’re doing. Laptop Lane is the physical footprint in an airport or a hotel. We’re actually going to be building these in Delta Crown rooms and other places like that. The physical retail space of Laptop Lane gives you a private cubicle. You can lock it. You can enter a private conference call. You can use a color printer to print out your PowerPoint presentation. You use it as your office away from home. Then, throughout the airport, you will connect wirelessly and be able to access the Internet from anywhere in the airport at speeds up to 11 megabits per second.
ISR: That would be a blazing connection!
Brilliant: You’re looking at a speed of almost eight T-1 lines. It’s a phenomenal speed. To be able to have Ethernet-like speed, while you’re not connected to a wire and you can walk around the airport, is a phenomenal product. People have been real excited about it!
ISR: Obviously, there’s going to be demand for this service as you roll it out in U.S. airports. What are the competitive barriers to entry, though?
Brilliant: Well, we have the best competitive barrier of all. In the case of Delta
