VoIP pioneer VocalTec still struggling as earnings slide

VocalTec Communications released third quarter earnings today, which demonstrated better cost controls but the continuation of eroding revenues. The Herzlia, Israel-based pioneer of IP telephony posted $1.2 million in revenue, down from $1.9 million the previous quarter and down from the $3.2 million in the third quarter last year.

VocalTec’s quarterly net loss improved slightly from $3 million to $2.9 million thanks to a slightly larger reduction in operating expenses to $3.2 million from $3.8 million. Gross margins, however, fell to 31% from 42% due mainly to lower product revenue and the mix of product and services sales in the quarter.

Elon Ganor, chairman and CEO of VocalTec, said it was certainly a soft quarter and that the company continued to experience an absence of orders for all products. "However, despite the low level of sales we are making important progress in several areas," Ganor said. "We have formed new channel relationships, responded to additional [requests for proposal] and see new trials of our products."

He added that the company has continued to re-deploy resources and reduce operating expenses to control operating cash burn. At the end of the third quarter of 2004, cash, cash equivalents and short-term investments totaled $10.8 million, compared with $13.9 million in the second quarter of 2004.

"We are monitoring our tight cash position while doing everything we can about managing cash burn without harming the viability of the company," Ganor said. He added that the effects of some cost cutting measures won’t be seen until next quarter so operational expenses will be lower in the fourth quarter.

Ganor cited the recent VON conference in Boston as an indicator of renewed vigor in the voice-over-broadband space and, particularly with the buzz created by AT&T’s CallVantage progress, and said the VoIP space has finally reached a turning point.

VocalTec named two new Latin American channel partners with which it will bring its new Essentra product suite to Mexico and Brazil: Acumen Telecomunicaciones and M13 respectively. Through on of those channel partners, VocalTec is competing for a Class 4 softswitch deployment with a large incumbent carrier, Ganor said.

Essentra supports a wide variety of applications, including broadband VoIP access, long-distance trunking, wholesale international long-distance, pre-paid and post-paid calling card, transport of GSM roaming and SMS traffic, and hosted enterprise VoIP services.

VocalTec also is making organizational changes to improve flexibility and responsiveness to customer requirements and conserve cash. The unspecified changes are in sales, research and development and product management.

"Obviously cash is a prime concern, but we are dedicated to proving ourselves with new customer deployments," Ganor said.