Fast growth

Forgent Networks and Level 3 close 2002 as the fastest growing NW200 companies.

In 2002, the Network World 200 saw its second consecutive year of revenue drop-off – this time, revenues were down 12% from last year to $785 billion. Still, not all NW200 companies posted lower revenue. Some, such as growth-list-toppers Forgent Networks and Level 3 Communications, bumped up revenue by more than 100% in 2002.

Growth through licensing

Forgent, a vendor of video management and scheduling software, grew fastest overall, with revenue increasing from $26.9 million in 2001 to $58.6 million in 2002. The 118% growth spike came on the back of a nugget Forgent mined from its portfolio of more than 40 patents. The company owns U.S. patent 4,698,672, which covers a JPEG compression technology widely used in devices such as digital cameras, PDAs, mobile phones and Web browsers.

In a highly contentious decision, Forgent began licensing the technology in June, adding $40 million to its revenue stream.

“Intellectual property licensing has been one of the key pieces of the company,” says Dick Snyder, CEO of Forgent, which is in the process of shedding the last vestiges of its video hardware business to focus on enterprise software.

The intellectual property licensing revenue helped Forgent acquire Global Scheduling Solutions for $4 million last year. GSS software, used for scheduling videoconferences, complements Forgent’s Video Network Platform software for managing networked videoconferencing devices.

Revenue from intellectual property licensing will continue to fund the software business, Snyder says.That business is averaging $1 million in revenue per quarter and growing on average 20% quarter over quarter, he adds.

Growth through acquisition

Carrier Level 3 closed 2002 in an auspicious position with a 105% increase in revenue compared with 2001, bringing its year-end revenue to $3.1 billion. While the increase is the largest of any NW200 company with revenue of more than $500 million, it’s not likely to repeat in 2003.

The majority of Level 3’s additional revenue stems from two acquisitions the carrier made last year, not in its core services business. On the services side, Level 3’s revenue was down by 15%, from $1.3 billion in 2001 to $1.1 billion in 2002. “Still, it’s important to focus on Level 3’s significant revenue growth overall,” says Seth Libby, a senior analyst at The Yankee Group.

Level 3 acquired Corporate Software and Software Spectrum, which resell business software from vendors such as Microsoft, IBM/Lotus and Symantec. The companies now operate as a wholly owned Level 3 subsidiary under the Software Spectrum name.

As long as Level 3’s investors are happy, the company is buying itself time in avoiding Chapter 11 bankruptcy, Libby says. And investors apparently still believe in Level 3’s viability. In July 2002, despite carrying $6.1 billion in long-term debt, Level 3 received $500 million in capital from three investors including Warren Buffett’s Berkshire Hathaway.

With the infusion, Level 3 acquired troubled ISP Genuity. The deal closed this year with Level 3 paying $62 million for the ISP, which is in bankruptcy proceedings, in addition to absorbing some operating expenses. With this acquisition, Level 3 expands its footprint while taking a competitor out of the market, Libby says.

Level 3 is “not out of the woods yet,” as Libby notes, but it does appear to be on the road to recovery.