Beleaguered Ing C Olivetti & Co SpA could recast itself as a systems networking and telecommunications company, but only if it re-establishes credibility with world financial markets, which many analysts believe it can do only by selling its personal computer-related businesses. While all of the new telecommunications-related businesses that Olivetti has started up in the […]
Beleaguered Ing C Olivetti & Co SpA could recast itself as a systems networking and telecommunications company, but only if it re-establishes credibility with world financial markets, which many analysts believe it can do only by selling its personal computer-related businesses. While all of the new telecommunications-related businesses that Olivetti has started up in the last few years, including cellular operator Omnitel Pronto Italia SpA and national telecommunications services company Info strada, have great potential, the majority will require substantial cash infusions. The sort of money they need to do what they want to do in telecommunications is on the order of between $500m and $1bn. At this point, it would be interesting to see where they would get it, said an executive at an Olivetti telecommunications-related joint venture partner who requested anonymity. Certainly not from its own coffers, given the half-year financial results Olivetti released in early September, with a net loss equivalent to about $293m on sales of $2.8bn. The personal computer merchant of Ivrea also saw its indebtedness nearly double, to $840m from $516m at the end of 1995. The personal computer business accounted for $6m of the company’s total $54m operating loss, while profit margins at its two brightest stars, Olivetti Lexikon (printers) and Olivetti Systems & Services, were down.
Although the personal computer business’s loss as a percentage of the total is not significant, says Annibale Sabatini, an analyst at Credito Italiano SpA in Milan, the fact that it came after a months-long restructuring effort is. It means that you’re no longer at a point of departure, but rather at your destination, he said. As a result, he continued, realistic indications are that Olivetti will sell, considering that they have done everything possible from point of view of restructuring and increasing productivity in the plant at Scarmagno. If Olivetti can sell businesses that are either not, or only marginally, profitable such as personal computers and printers, and take a strong joint venture with its systems business, it can re -establish a good enough financial image to acquire the financing necessary for its telecommunications businesses, Sabatini said. Sabatini says Olivetti’s personal computer business is worth more or less what Gary Klesch offered – between $185m and $200. The sum, he explains, is derived from taking a third (which is about what personal computers represent of Olivetti’s total business; 23.5% to be exact) of Olivetti’s external personal computer revenues (approximately $670m). The latter is calculated by subtracting the amount sold internally (about $650m) from the total of about $1.3bn. He notes that if De Benedetti were to just shut the business down, it would cost him approximately the same amount in redundancy pay and liquidation of p lant assets. Of its telecommunications businesses, Omnitel is without a doubt the crown jewel, with many financial anlysts valuing it higher than Olivetti itself, based in part on the cellular operator hitting its original 1996 total subscriber fore cast at the end of August.
By Marsha Johnston
At the time of Olivetti’s drama, Omnitel chief executive Silvio Scaglia declared publicly that Omnitel does not fear the crisis in Ivrea because it has funds enough for network investment – $2.1bn – to last through 2004. William Laurent, mobile communications analyst at London-based Robert Fleming Securities Ltd, confirms Scaglia’s assertion, while adding that if Omnitel wanted to build a DCS 1800-based Personal Communications Network service, it would have to go back to its shareholders. Infostrada, which has been marketing dial-up national long distance service at rates between 25% to 40% less than Telecom Italia SpA since last spring, is likely to be the first of Olivetti’s telecommunications businesses to need a new cash infusion. A source close to Infostrada chief executive Riccardo Ruggiero said the company’s $70m investment
budget allotted for this year has been largely spent, and that next year it could require up to $166m. If Infostrada’s cash-rich partners Bell Atlantic-Nynex (33%) and France Telecom (which was on the verge of finalizing its partnership when Olivetti got into trouble) do not get skittish about their partner, Olivetti could likely count on their help. France Telecom says it is still negotiating fo r a stake in Infostrada, which would make it Italy’s number two operator. Bell Atlantic Corp would not comment about its partnership, although a spokeswoman insisted that its silence did not necessarily portend ill for Infostrada. Hughes Olivetti Telecom, Olivetti’s satellite venture with Hughes Network Systems Inc, has enough cash from its seed money to extend its presence in Europe from the UK and Germany to Italy and Spain early next year, says its business development manager Nick Rich. There are contingency plans, as everyone has, but we are perfectly comfortable with Olivetti as a partner. They continue to provide great engineering and support service, Rich says. Videostrada, Olivetti’s year-old cable television network joint venture with US West International Inc, will require lots of cash to design, build and operate regional cable networks in Italy, but not until the government settles on a definitive regulatory scheme.
Olivetti is a strong partner, and Videostrada is a relationship we are keen to maintain, said a US West International spokesman. Olivetti’s other telecommunications-related businesses, including Sixtel, its joint venture with Northern Telecom Ltd, and its on-line services such as UK and Italia Online, are not capital-intensive. Says Bob Bottomley, Northern Telecom’s representative to Sixtel in Rome, Things are going very well, running an infrastructure supply business. He added that revenues should hit about $85m this year. In the UK, UK Online has acquired the same market share – 4% – among consumer on-line services users as America Online Inc, says Olivia Gibney, senior analyst with Romtec Ltd, in Maidenhead. The service has a high brand awareness; it seems to have good penetration, she said. But to ensure the ultimate success of all of its tele-communications investments, repairing Olivetti’s ties to financial markets will be as impor-tant a task for new chief executive Ro berto Colaninno as selling the personal computer business. As Davide Corritore, chief executive for Deutsche Bank Funds in Milan, wrote in an open letter to Olivetti that was published in the Italian business daily Il Sole-24 Ore: after all, is an increase in capital [for Olivetti] conceivable without happier relations having been built with the financial market?