Story of a Sinking Ship

Comverse is one of the flagships of Israel's high-tech industry. For years, the company was thought to have an unshakable hold on the cellular voice mail management market.

The story of how it arrived at its current problematic state is fit for a movie. The company was founded in 1982 by Boaz Misholi, Kobi Alexander and Yechiam Yemini, who originally called it Efrat Future Technology. Four years later, they founded Comverse in the United States, taking the company public that year with an initial valuation of $20 million. They raised money on Nasdaq several more times, including once on the brink of the dot-com bubble at a company valuation of $600 million.

In 2006, Comverse found itself in the middle of an options backdating scandal, with the company's top management accused of illegally changing the date on stock options in order to maximize profits. Alexander, then the company's chairman, fled to Namibia to escape multiple charges of fraud; he is still there today, fighting extradition to the United States.

For many analysts, the backdating scandal was a harbinger of the company's dismal future. Comverse hasn't submitted full financial reports since then, and was booted off regular trade on the Nasdaq onto the pink sheets.

In the wake of the scandal, the company was left in a management crisis: It no longer had a management introducing new growth engines. In fact, one of the company's biggest problems today is that it's stopped innovating - the European cellular voice mail market was said to have been saturated as early as 2002. Since then, most of Comverse's innovation has been in its value-added services department, the same department that's now expected to see the bulk of the staff cuts.

Many in the high-tech industry now believe Comverse's destiny is what the analysts have been predicting over the years - that the flagship will sell off subsidiaries, spin off departments and break up into bits.