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Amdocs Stays Neutral

Zacks Equity Research

Amdocs Ltd. (DOX) posted weak financial results for the first quarter of fiscal 2012, missing the Zacks Consensus Estimates. However, management provided a strong financial outlook for the rest of 2012. Amdocs offers a portfolio of several industry-leading technology integration products for managed services and large transformational project. Despite facing a volatile global macro economy, the company is successfully executing its operations across geographies. Amdocs benefited from the long-term trend toward information technology outsourcing. We believe the long-term fundamentals of Amdocs remain intriguing primarily due to the transition of telecommunications industry to converged IP solutions.

Beside telecom, Amdocs commands a strong foothold within the cable TV industry. In a significant contract win, Amdocs recently extended its existing business agreement with Comcast Corp. (CMCSA), the largest cable MSO in the U.S. The extension period is for multi year period, during which Amdocs will supply various products from its CES platform. The company also won three strategic contracts in the Caribbean and Latin American regions. In December 2011, Amdocs won a major contract in Europe. Virgin Media Inc. (VMED), a leading integrated pay-TV and telecom operator in the U.K., selected the company to revamp its network inventory management system.

A major problem for Amdocs is that its ongoing business fluctuations with AT&T Inc. (T). AT&T has either terminated or postponed several transformational deals with Amdocs, after its failed attempt to acquire T-Mobile USA. AT&T is the biggest customer of Amdocs, accounting for about 29%-30% of the company’s total revenue. Had the proposed merger materialized, the services integration of the two platforms may generate incremental $75 million - $100 million revenue per annum for Amdocs. The company may face severe top-line volatility if it fails to restore its previous revenue run rate with AT&T. 

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