Economic Woes Boost Videoconferencing

Videoconferencing equipment makers, such as Norway's Tandberg and its U.S. rival Polycom, are riding high as companies try to cut costs

by Jennifer L. Schenker

Reducing carbon footprint, a new priority for multinationals, is no easy task for Dutch express-delivery outfit TNT (TNT.AS), which operates 47 aircraft and more than 26,000 trucks to move an average of 4.4 million parcels, documents, and pieces of freight each week. That takes a lot of jet fuel and gasoline.

There is not much that can be done to cut back on that traffic, so TNT is instead urging employees to reduce carbon dioxide emissions under a program called Planet Me. A big part of Planet Me is a drive to reduce business travel and use videoconferences instead. TNT estimates the CO2 savings from videoconferencing alone to be 2.6 kilotons a year for the next four years, or a total of 10.5 kilotons.

There are other benefits, too. "We're telling our employees that using videoconferencing is beneficial not just for the environment, but also for life balance," says Carin ten Hage, TNT's social responsibility director. "Top management who fly a lot recognize that spending your life in airports can be really horrible." Not to mention expensive.

Tandberg Has 40% Market Share

The embracing of videoconferencing by TNT is part of a larger trend. The worldwide videoconferencing systems and services market, which reached $1.63 billion in 2007, is expected to grow to $4.2 billion by 2012, according to technology consultancy Frost & Sullivan, as more companies try to become greener and cut costs.

Few companies are benefiting as much as Norwegian videoconferencing equipment maker Tandberg (TAA.DE), which counts TNT as one of its customers. The company, which has dual headquarters in Oslo and New York, leads the industry in revenue with 40% of the global videoconferencing market, says Frost & Sullivan. The U.S.'s Polycom (PLCM) is market leader in number of units shipped. Together, Tandberg and Polycom control about 70% of the market for videoconferencing devices and infrastructure, selling against and sometimes cooperating with Hewlett-Packard (HPQ) and Cisco (CSCO), both of which make high-end videoconferencing systems.

"There has been a big takeoff in growth," says Fredrik Halvorsen, chief executive of Tandberg, which had revenues of $630.5 million in 2007, up 50.2% over 2006. "Videoconferencing has become an integral part of corporations' communication strategy over the last 18 to 24 months."

Investors Fear Subprime Fallout

Tandberg has racked up 33.5% annualized revenue growth for the past 10 years, and the outlook for 2008 is looking even better. Second-quarter revenues were $194.9 million, compared with $143.8 million in the same quarter last year, representing 35.5% year-over-year growth. Operating profit was $41.2 million, compared with $33.3 million in the same quarter last year.

The stock price, though, has dipped some 37% over the last year. Tandberg does half its business in the U.S. and the fear is that the subprime crisis will lead to cutbacks in spending on videoconferencing equipment, says Halgeir Hollup, a financial analyst at Oslo brokerage ABG Sundal Collier (ASCO.BE). While economic woes are expected to prompt more companies to buy videoconferencing gear and cut back on travel, one theory is that companies will first lay off employees and then wait before buying new equipment, creating a spending lull, says Hollup.