SeaChange soars in struggling market
You can't have a business without making something buyers want. But how good a business you have often depends on how easily buyers can shop elsewhere.
It's a lesson that's well illustrated by companies in Massachusetts' big, and still mostly struggling, telecommunications sector.
Of the state's cluster of telecom equipment makers, SeaChange International Inc. of Maynard found its way to the best showing on the Globe 100, 79th place. A key driver: SeaChange cranked up profit margins by 68 percent in 2004 from a year earlier.
SeaChange makes equipment cable television companies such as Comcast Corp. and RCN Corp. use to provide video on demand -- thousands of hours of shows TV customers can order instantaneously from an on-screen directory. Video on demand is one of the few real competitive advantages cable has over cheaper satellite television, and Comcast is pushing to have 10,000 hours of on-demand programming available to all customers within a year.
Comcast chief executive Brian L. Roberts hopes one day to use generic data storage devices for video on demand instead of premium-priced SeaChange boxes. A well-funded Boxborough start-up, Broadbus Technologies Inc., aims to leapfrog -- and sink -- SeaChange with a new generation of more powerful, cheaper technology. But for now, SeaChange still commands top dollar as one of the top two or three video-on-demand vendors, not just domestically but with growing customers in Europe, Latin America, and Asia.
''Television is experiencing a global evolution as viewers everywhere increasingly become accustomed to watching movies and programs on their own schedules," said James Kelso, SeaChange vice president.
With more equipment in use, SeaChange has also rapidly increased revenue from consulting services to cable operators, an area that tends to have richer profit margins than hardware.
SeaChange's only telecom companion among the state's 100 best-performing public corporations last year was Boston Communications Group Inc. of Bedford, a back-office systems provider for wireless phone companies' prepaid service plans. Even as Verizon Wireless slashed its outsourcing business with Boston Communications, Nextel Communications Inc.'s fast-growing Boost Mobile prepaid division and other carriers tapped the Bedford company as one of the few that can solve all the headaches of selling, activating, and replenishing high-profit prepaid accounts.
Massachusetts also is home to many companies that survived the telecom market implosion in 2000-01, only to have far too many competitors also survive.
Between the enduring dominance of industry giants Cisco Systems Inc. and Juniper Networks Inc. and the emergence of reliable, cheap Chinese-made networking gear, less and less business is left for companies like 3Com Corp. of Marlborough, Enterasys Networks Inc. of Andover, and Avici Systems Inc. of North Billerica. Sales continued to fall last year for 3Com and Enterasys, and Avici's stock skidded 70 percent as a sales deal with Nortel Networks Inc. sputtered.
Those three companies -- and Brooktrout Inc. of Needham, Skyworks Solutions Inc. of Woburn, and Zoom Technologies Inc. of Boston -- exemplify lingering overcapacity in many sectors of the telecom industry.
''There's a lot of pressure on gross margins," said Sandy Sanders, an equity analyst with Boston mutual fund manager Evergreen Investments. ''There's still a fair amount of consolidation needed in the telecom space."
Peter J. Howe can be reached at howe@globe.com. 