We reiterate our long-term Neutral recommendation on Amdocs Ltd. (DOX). Amdocs enjoys a strong portfolio of several industry-leading technology integration products for managed services and large transformational projects. The company benefited from the long-term trend toward information technology outsourcing. We believe consolidation of the telecom industry may act as a major catalyst for the company. Historically, Amdocs remains a major beneficiary of the merger among the big U.S. telecom carriers. We also believe the long-term fundamentals of Amdocs remain firm mainly due to the transition of telecom service providers to converged IP solutions.
Amdocs recently completed the acquisition of Bridgewater Systems of Canada, a leading intelligent software developer for converged mobile platform. Bridgewater’s software optimized mobile data growth, reduces network congestion by diverting data traffic to WiFi networks while enabling wireless service providers to migrate from 2G to 3G or next-generation 4G networks. Bridgewater serves more than 150 wireless operators throughout the world. Important among them are giants, such as Verizon Wireless, a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD), Sprint Nextel Corp. (S), Bell Mobility, Telstra, and Etihad Etisalat.
Using Amdocs’ technology with integrated Bridgewater software will enable wireless carriers to offer innovative pricing strategy for data plans. While enabling its customers to offer personalized value-based pricing strategy, Amdocs can now move one step forward compared with its rivals, such as Comverse Technologies Inc, Convergys Corp. (CVG), and Tekelec (TKLC), which acquired Camiant last year.
However, in the near term,the company may suffer due to higher expenses for productivity improvement and prolonged global economic volatility.Amdocs is exposed to the global economic downturn, particularly those events that affect the telecom industry. Macroeconomic scenario is yet to fully come out of the turmoil. Delay in business transformation on the part of carriers may reduce capital spending.
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