Summary Business: Advanced communication products Headquarters: Calabasas CEO: Michael L. Margolis Market Cap: $1.85 million Dividend Yield: N/A* Total Liabilities: $221 million P/E: 127.6 Long-Term Debt: $119.3 million * Tekelec does not pay dividends Not every technology company has hit the skids. In this year’s first quarter, Tekelec’s net income shot up to $1.4 million from a net loss of $1.8 million a year ago. The Calabasas advanced communications products company reported sales rising 40 percent over the first quarter of 2000, to $84.3 million from $60.1 million a year ago. What’s more, while the stock price of the Calabasas advanced communications products company tracked the Nasdaq composite for much of the last year, it has climbed in the last six weeks, charging from a 52-week low of $14.81 on April 3 to $30.96 on May 11. Meanwhile, competitor Nortel Networks Corp. posted a loss in the first quarter this year of $385 million and announced it was laying off 5,000 workers. Lucent Technologies Inc. lost $3.7 billion in the same quarter. It will lay off 2,000 people. “Yes, we stood out in earnings report season,” said Michael Margolis, Tekelec president and chief executive officer. While many telecommunications product providers have suffered since early last fall, Tekelec, not exactly the household word its competitors Nortel and Lucent are, has profited by tending to its own niche in the telecom world. “We tend to be a leader in an uncrowded space,” Margolis said. What Tekelec shares with Nortel, Lucent and Alcatel is the market in telephone signaling network equipment. Typically, one network carries voice traffic over phone lines, both wired and wireless. Another one, called Signaling System 7 (SS7), actually establishes contact for callers and provides other services requiring limited bandwidth, like caller identification and text messaging on cell phones. These are services required throughout a call from wireless phones as the caller moves from cell to cell. Growth in the use of wireless phones and the development of special services by providers has made the kinds of equipment provided by Tekelec and its competitors essential. And apparently it has made Tekelec resistant to the vagaries of the stock market. While others are in the same business at Tekelec, it is only a small part of their businesses not enough to prop up earnings and stock prices. “They have brand name recognition in their niche,” said Kim Caughey, an analyst with Parker/Hunter Inc., a Pittsburgh-based investment bank. “Some competitors, like Nortel, are not focusing as much on this niche.” In fact, according to the marketing consulting company of Frost & Sullivan, Tekelec captured 73 percent of the North American market for SS7 equipment in 1999. “And we anecdotally believe it’s a little higher than that now,” Margolis said. Tekelec’s stock price rode almost exactly the same roller coaster as that of its competitors and the Nasdaq index until recently. Three of the four leaders in the SS7 business Tekelec, Lucent and Nortel hit their 52-week highs in July 2000. Alcatel went public in October at $71.25. Then all four reached their 52-week lows at the same time, April 3 or 4: Tekelec at $14.81, Lucent at $5.50, Nortel at $12.50 and Alcatel at $20. The similarities may stop there though. Even during what has been characterized as a Nasdaq rebound last month, the stock price of the other three hovered between $10 and $20. Tekelec has climbed steadily past that. “They stand alone as far as that is concerned,” Caughey said. “And the price is directly proportional to its earnings performance.” Margolis said Tekelec has benefited from concentrating on one sector that is still very active while its competitors, although doing business in the same sector, have suffered because other parts of their companies are performing so poorly. “They’re facing challenging times,” he said. “We’re a very focused company. The divisions we’re competing against are not their flagship divisions. “With what we do, we built a better mousetrap.”