Ascom AG - Company Profile, Information, Business Description, History, Background Information on Ascom AG

Belpstrasse 37
CH-3000 Bern 14

History of Ascom AG

Ascom AG is Switzerland's largest telecommunications company. Ascom manufactures and distributes a wide array of telecommunications equipment, including switching and transmission equipment, mobile radio systems, corded and cordless telephones, cellular telephones, fax machines, hearing aids, coin and card-operated telephones, pneumatic-tube mailing systems, and automatic teller machines. Endeavoring to emerge from the protected Swiss market in order to become a worldwide presence in the telecommunications industry, the company staked its future on the corporate network sector of the industry.

Ascom was formed from the 1987 merger of Switzerland's three largest telecommunications industries. Hasler Holding AG (founded in 1852), Autophon AG (founded in 1922), and Zellweger Telecommunications AG had flourished for years serving the Swiss Post, Telephone, and Telegraph (PTT). Autophon, based in Solothurn, specialized in standard as well as mobile phones, and the Bern-based Hasler produced switching systems, electronics, and telex machines. Prior to the merger Hasler and Autophon had expanded steadily. Autophon's sales had grown on average 17 percent annually from 1981 to 1985; Autophon's 1986 sales were SFr 800 million, while Hasler reported SFr 850 million.

By the 1980s, however, the PTT was expected to liberalize its market, and Hasler, Autophon, and Zellweger joined forces in an effort to adapt to the changing Swiss and global communications industry. The two companies merged operations July 1, 1987, and the merger was effected retroactively to January 1 of that year. The new company had annual sales of SFr 2 billion ($1.17 billion), 13,000 employees, and produced about two-thirds of Switzerland's telecommunications equipment.

From its inception Ascom sought to lessen its dependence on the Swiss market, which accounted for 70 percent of sales, and increase sales and manufacturing outside the country. To this end, in 1988, the company purchased the New Jersey-based Rockaway Corporation, which manufactured mail-handling equipment. By the end of that year the company's revenues were SFr 2.42 billion, and profits reached SFr 49.7 million&mdash′ofits having increased by 20.8 percent. The following year sales had increased ten percent to SFr 2.64 billion, and foreign sales accounted for 36 percent of the total. However, net earnings had increased only 3.1 percent and cash flow by only five percent.

In 1990 Ascom acquired a majority position with the German energy-systems company Frako GmbH, and it assumed management responsibilities for the French service-automation company Monétel. In 1990 sales (42 percent of which were outside Switzerland) were SFr 3 billion, cash flow was SFr 249 million, and net profit reached SFr 52 million.

Ascom's position as a mid-sized company long dependent on government contracts and struggling against multinational giants in an ever-globalizing market, led to the company's focus on continued improvements and innovations. Leonardo E. Vannotti, appointed chief executive officer in 1991, felt that Ascom's survival in a European telecommunications industry dominated by such powerhouses as Ericsson, Alcatel, and Siemens depended on establishing a niche in the market. He decided to focus on the sector known as corporate networks, in which all of a company's telecommunications are integrated, thus providing workstation-to-workstation connectivity. The company estimated that the market for corporate networks would grow nine percent annually through the 1990s (making it the fastest growing sector in the industry), when 60 to 70 percent of all personal computers would be connected to networks. The company foresaw the international market growing more than fourfold to $165 billion by 2010.

Ascom found the cornerstone of this strategy in Timeplex, a highly regarded subsidiary of the U.S. computer company Unisys. Ascom was able to take advantage of the difficult position of Unisys, which was struggling to raise cash to service heavy debt payments, to acquire its Timeplex subsidiary. Unisys had purchased the Woodcliff, New Jersey-based Timeplex three years earlier for stock valued at $300 million; it sold the subsidiary to Ascom for $207 million in September 1991 (although it was to continue to market Timeplex products through a joint-marketing agreement). Sales at the unit were around $250 million in 1990.

Timeplex, founded in 1969, had been at the forefront of providing private backbone communications networks. The company eventually began offering an array of products to unify local area and wide area communications, including innovating routing, circuit, and frame switching technology. By the time it was purchased by Ascom, Timeplex was considered a world leader in the industry, with a market consisting principally of large industrial and service companies in the United States and Europe. Timeplex also sold equipment to such public network clients as AT&T, U.S. Sprint, France Telecom, and British Telecom. A full 55 percent of its business was outside the United States, and the company was concentrating its efforts in growing markets such as Eastern and Western Europe, Asia, and Latin America.

The newly named Ascom Timeplex, Inc. became the centerpiece of Ascom's Corporate Networks Division, bringing together Ascom's advanced research and development with the networking strength of Timeplex. "The future trend is clearly where technology provides the same links for data and voice," Vannotti told the Wall Street Journal. Through the acquisition, Ascom would build its U.S. presence, and Ascom Timeplex would further its image as an international internetworking company. The acquisition also demonstrated Ascom's desire to be a major player in corporate networking. During this time, Ascom Timeplex began developing asynchronous transfer mode (ATM) technology, which combined voice, data, video, and image transmissions, allowing for interactive, integrated communications.

Another part of Vannotti's strategy to increase Ascom's presence was through the creation of alliances with other firms. Interested primarily in its synchronous digital hierarchy (SDH) transmissions equipment, Ascom entered a joint venture with the Swedish firm Ericsson in late 1991. The agreement called for Ascom to contribute the business operations of its transmissions-system division, while Ericsson would supply the hardware. The venture was to initially target the Swiss PTT as competition, but plans were to use Ericsson's extensive global network to expand. Through the agreement, Ericsson gained access to the Swiss PTT while Ascom gained access to the expensive SDH technology. Ascom held a 60 percent stake in the venture, Ascom Ericsson Transmission Ltd., which started operations June 1, 1992.

Ascom's sales in 1991 rose three percent to SFr 3.05 billion, with cash flow reaching SFr 282 million. Net profits reached SFr 54.3 million, but due to a change in accountancy procedure 1991 figures were not comparable to earlier years' figures.

Ascom experienced a difficult year in 1992, when it lost SFr 46 million and its stock did not pay a dividend. Problems were cited at its cable television business in Germany as well as its mobile radio business, where internal reporting procedures proved inadequate and outside auditors discovered the shortfall. The loss came less than a month after a letter to shareholders predicted a SFr 25 million profit. Furthermore, economizing at the Swiss PTT resulted in Ascom's orders being cut by 20 percent. These moves hastened the company's decision to look more aggressively at other markets, especially in the private sector, and its stated goal was to increase sales outside Switzerland to 70 percent of its total. However, Switzerland's rejected entry into the European Economic Area (EEA) in December 1992 complicated the company's ease of access to other European markets.

Ascom's poor performance in 1992 led to a structural reorganization toward the end of that year. Thus, in an effort to achieve " a stronger focus on private sector customers," and to create "an organization that was more transparent to those inside and outside," the number of divisions was cut from six to four, and the corporate management committee was pared from 12 to seven. The company's four new divisions included corporate networks (the company's core division producing enterprise networks, private branch exchanges, and cordless communications systems); telecom terminals (which handled corded and cordless telephones, fax machines, and mobile radio transceivers, and served mainly national telecom companies and large corporations); public networks and mobile radio (which served primarily the public sector with transmission and switching equipment); and diversified operations (which covered those activities not directly related to telecommunications, such as automatic teller machines, pay telephones, hearing aids, and franking machines).

Other efforts were made to trim costs. A factory in Estavayer-le-Lac was to close at the end of the year and further payroll cuts, largely in Switzerland, were planned. Ascom also shed its mail processing business, the Hasler KM8 Company, in a sale to Bell & Howell.

In 1992 Ascom Timeplex won several important orders, including a $16-million contract with the Federal Reserve Bank in Chicago to integrate its communications systems so as to connect its check processing, wire transfer, and automated clearinghouse services into a single nationwide network, bringing together the information from each of the reserve's twelve branches. This was Ascom Timeplex's largest contract to date. Another important contract included providing networking equipment to the Shanghai (China) Posts & Telecommunications Administration, worth $1.2 million.

In early 1993 Ascom announced a joint venture with LK Products, a subsidiary of the Finnish firm Nokia, to develop its position in the worldwide SAW (surface acoustical wave) components market. SAW components are intelligent chips used in mobile communications and optical transmission. Ascom was to contribute the design, development, and manufacturing of the technology, while Nokia was to distribute and market the product and handle the day-to-day operations of the new company, Advanced SAW Products, based in Neuchatel, Switzerland.

Principal Subsidiaries: Ascom Business Center AG; Ascom Hasler AG; Ascom Telematic AG; Ascom Timeplex Inc. (U.S.)

Additional Details

Further Reference

"Ascom Expects Sales Gains, Improved Cash Flow for '92," Wall Street Journal Europe, May 26, 1992, p. 18."The Ascom Holding Annual Report," Bern: Ascom Holding, 1992.Ascom's Sales Jump 10%," Financial Times, January 30, 1990, p. 25.Collier, Andrew, "Ascom Timeplex Sees Future in ATM," Communications Week, August 30, 1993, p. 25.----. "Ericsson Forming Swiss Venture in Move on Transmission Gear," Electronic News, December 9, 1991, p. 15.----. "Timeplex Takes Aim at Internetworking," Electronic News, January 20, 1992, p. 16.----. "Unisys Sells Timeplex to Foreign Firm, Electronic News, June 17, 1991, p. 1.Dullforce, William, "Ascom Sales Rise in Line with Forecast," Financial Times, June 7, 1990, p. 35.----. "Swiss Telecommunications Companies Plan Merger," Financial Times, December 22, 1986, p. 17.Karpinski, Richard, "Timeplex Sale Boosts Vendor's Local Exchange Focus," Telephony, June 17, 1991, p. 9.Lapreta, Laura, "Ascom Is Seen Returning to Profitability in '93, Though It May Be 'Difficult Year,"' Wall Street Journal Europe, May 6, 1993, p. 5."Nokia Forms Joint Venture," Cellular Business, March 1993, p. 10.Rodger, Ian, "Ascom Loses Swiss Status Under Ownership Rules," Financial Times, May 26, 1992, p. 20.----. "Ascom Puts Lack of Control as Reason for Loss," Financial Times, May 6, 1993, p. 24.Suder, Margaret, "Ascom's Chief Plots Ambitious Strategy," Wall Street Journal Europe, February 18, 1993, p. 4.

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