VeriSign Is Betting on Its Tech Edge

It's an Internet play. No, it's a telecom play. No, it's a security play. Actually, VeriSign(VRSN Quote) is all of the above, and that's probably why many investors are so confused about the company.

VeriSign will get slightly simpler with its sale of its shrinking retail domain-name registrar business. But putting together the remaining pieces of the VeriSign puzzle is still no easy task. It may be worth the time, though, because the company is jockeying to gain from an acronym-laced list of upcoming technology advances, including wireless-number portability, Voice over Internet protocol (VoIP), and RFID, or radio frequency identification device. There are a couple of hitches, of course: Some technologies are still years away, and the key will be execution, an area where management's record is not spotless.

"The amazing thing about VeriSign -- the reason it's the only name in my entire space that I recommend as a long-term buy -- is that there are a lot of different opportunities for it," said Wedbush Morgan Securities analyst Tim Leehealey, who has had a buy rating on the stock for more than a year. Shares of VeriSign declined 34 cents, or 2%, to close Thursday at $16.91. (Wedbush Morgan hasn't done any banking for VeriSign.)

One of the biggest sources of future growth for VeriSign stems from its often overlooked and misunderstood telephony business, which represented 39% of the company's $268.1 million in sales in the just-reported quarter. VeriSign owns the nation's largest independent Signal System 7 network, a software layer of intelligence sitting on top of the telephone system that helps set up calls between carriers. With that network, VeriSign is now handling 50% of cellular roaming traffic in the U.S. and also offers such services as caller ID.

Piecing Together VeriSign's Revenue
Business Group	Q3/03	Q2/03	Q3/02
	(in millions)
Internet Services (Security, payment, registry)	$108	$105	$127
Telecommunications Services	105	101	100
Network Solutions (Retail domain name registrar)	55	59	75
Total	$268	$265	$301
Source: VeriSign, Morgan Stanley

The most imminent catalyst for VeriSign could be the Nov. 24 wireless number-portability deadline, which requires wireless carriers to let customers take their numbers with them when they switch carriers. To make WNP work, carriers will have to use a directory to determine how to properly route a call.

VeriSign already maintains a version of that directory to handle certain wireline calls and expects to do the same to handle WNP for about two dozen wireless carriers, said CEO Stratton Sclavos in a telephone interview. That should translate to new revenue in the single-digit millions of dollars in 2004 and double-digit millions thereafter, he said.

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