AudioCodes (AUDC) is ready. Over the past year, I've been updating my loyal followers and Seeking Alpha subscribers on my investment thesis on this strong networking company. The company has delivered on a restructuring, a significant buyback, new product launches, revenue growth, profits and cash flow. This has sent the shares up nicely over that time. In one of my recent articles I stated that AudioCodes had a chance of becoming a $1 billion company if one of a few catalysts landed. I believe that one of these catalysts landed this week, as on October 21st, Microsoft (MSFT) announced that Lync Voice is leading enterprise shipments. As a preferred partner to Microsoft, AudioCodes' One Voice for Microsoft Lync offers enterprises a one stop solution for voice hardware, installation and service. AudioCodes has years of experience and knowledge in voice, hence the strong partnership with Microsoft.
Microsoft's press release says it all:
"Some people were skeptical at our Unified Communications Launch in 2007, when Bill Gates said that the magic of software would move business communications far beyond phone calls, and, that over time, the transformation to software-based communications on the Internet would provide more capabilities at a lower cost than PBX systems. Even when we unveiled the Lync Server voice feature set in 2010, and demonstrated in a public RFP session how Lync delivered presence, instant messaging, video, web conferencing, and voice at a lower price than competitors' voice only seats, people still wondered….when would enterprises shift their buying criteria from PBX systems to UC?
The answer is now.
"Interest in Lync is huge, based on a recently released report by Infotrack. This year, almost 60% of enterprises (500+ seats) surveyed are deploying or planning to deploy Lync, including enterprise voice, up from 45% last year. The proportion of enterprises with no plans to deploy Lync for voice dropped dramatically, from 21% down to only 7%. Finally, one in four enterprises now report Microsoft as their preferred vendor for IP-PBXs, a number unheard of back in 2010.
Our financial results reflect the growing customer adoption. In our Fiscal Year 2013 earnings release, we announced that Lync revenue grew 30% year over year. In our earnings call, we also disclosed that the Lync business, including Lync Server and Lync Online, surpassed $1B in annual revenue. Our voice software license sales grew 150% on top of an already significant installed base, which we noted in February at Lync Conference was more than 5M seats.
Finally, at Microsoft's recent Financial Analyst Meeting, Microsoft COO Kevin Turner shared - based on a comparison of our internal sales information to the enterprise telephony shipments of every PBX maker, including Cisco and Avaya, as provided by analyst firm, T3i -- that Microsoft is now shipping more enterprise voice lines than any other technology company in the world."
AudioCodes is a direct beneficiary of this press release as it supplies Microsoft and enterprises. On the carrier side it just opened the One Voice door with BroadSoft (BSFT) and other hosted players last week. I see this press release as a sign of a strong 4th quarter for AudioCodes and a stronger 2014. I maintain my $14 price target for 2014 and my floor target of $10 per share.
Cisco (CSCO) and Avaya were previously winning over enterprises as they were able to offer a one stop, one price solution, while Microsoft had a price for its server and software and then the enterprise had to shop around for its SBCs, IP phones, installation and service. With the introduction of AudioCodes' One Voice for Microsoft Lync, Microsoft can now, partnering with AudioCodes, offer enterprises a one stop, one price solution similar to Cisco and Avaya. With the playing field leveled we are now seeing Microsoft Lync win over enterprises like they did with the enterprise pc over the years. This will result in a Dell (DELL), Hewlett-Packard (HPQ), IBM (IBM), AT&T (T) or Microsoft themselves knocking at AudioCodes' door, that in itself, will make AUDC a $12 - $14 stock.
AudioCodes' one stop shop in voice networking equipment and services makes it a global voice authority that will soon be discovered by the investment community either through investment bankers, myself or a takeover in the next 3-6 months. Microsoft's market share gains in voice and AudioCodes' focus on product offering makes it a win-win for all that play with them.