Is Culture as Important as Fundamentals at IDT?

Also, why New Era's blowup doesn't mean TSI International Software will implode, and one reader's view on Computer Associates and its auditors.
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Thursday thud:

Yesterday's item on

IDT

(IDTC)

, the telecommunications company and parent of

Net2Phone

, set the Hostile React-O-Meter in motion. (Outa control, I tell ya,

outa control

.) "What's your point?" groused more than one emailer. "I wouldn't exactly call this journalism, responsible or otherwise," griped another. "I hope I didn't pay a subscription to have articles like the above written," e-scribbled still a third.

Why, they all wanted to know, did I dare question a $25 mil loan by the company to

Lermer Overseas Telecommunications

, a seemingly related party that, as far as anybody knows, doesn't technically exist, when that's such a small part of the company's overall story?

Because (as I told the company, which asked the very same question) relationships and deals like IDT's speak volumes about the culture of the company. And culture plays perhaps

the

most important role in every company's fundamentals, or lack thereof.

Here's a company making one of, if not the largest loans it has ever made to any company. Don't you think it would've looked into whether the company legally existed? If IDT was this sloppy in checking out Lermer, what about other transactions?

Further, was a loan to Lermer the best thing the company could do with $25 million? It's a big question, considering the cozy relationship between IDT founder Howard Jonas and Lermer founder Simon Lermer? (You can't trust

anyone

these days.)

Makes me wonder what Lermer really does. Neither Simon Lermer nor his attorneys have returned my calls.

No domino theory:

When one company in an industry implodes, it's often a matter of time before its competitors suffer the same fate. Yet money manager Scott Turkel of

TCM Partners

in Rowayton, Conn., no stranger to this column, doesn't expect that to be the case with

TSI International Software

(TSFW)

, which is considered by Wall Street to be a direct competitor of

New Era of Networks

(NEON) - Get Report

. Yesterday New Era's stock tanked 56% to 19 7/16 after the company warned of an unexpected loss in the second quarter. TSI also slipped, but by only 9% to 23 1/4; Turkel says he had hoped it would have fallen more so he could have bought more.

Why should we care about what what Turkel says? He's on this column's

honor roll with A-pluses for his past mentions

here of

Verity

(VRTY)

and

Unify

(UNFY)

, when both were Wall Street outcasts. (They both have since zoomed.) He tends to like underdogs in arcane industries.

TSI's claim to fame, for example, is a software that helps other software applications within a company to talk to one another as well as to databases and other platforms. In the old days of five or six years ago, companies had to hire programmers to link each program. Now this form of middleware, as it's often called, does it.

"When you're looking for companies, you want to look at someone that three years from now will be a $700 million company where the market opportunity is enormous," he says. "What would I want to buy

Colgate

(CL) - Get Report

for?"

Fine, but what makes Turkel so confident that TSI won't go the same route as New Era? An important reason: He believes TSI has taken marketshare from New Era. TSI CFO Ira Gerard will only say that TSI has "replaced" Neon on several accounts, and that TSI only sees New Era on about 15% of its prospect list. TSI officials also say that unlike New Era, which has grown aggressively through acquisitions, most of TSI's growth has come from internally generated sales. New Era declined to comment on the market share issue.

As a result, Turkel believes, TSI's revenue growth, operating margins and earnings growth will be sharply higher than most analyst estimates (52%, 15%, 61%, respectively, versus 44%, 13.2% and 50%.)

To which Gerard says (I'm paraphrasing): No comment.

Auditing Anxiety:

An item here

earlier this week on

Computer Associates'

(CA) - Get Report

nixing of

Ernst & Young

, its longtime auditor, prompted

Dave Smith

, who identifies himself as a retired CFO of a public company, to write: "I applaud the change of auditors for any company which has had a long-term relationship with one auditor. I was taught that it is GOOD to change auditors at least every five years in order that a new and different look and attitude can be disclosed to management and the public through the change.

"I believe that CA may have had an overlong relationship with these auditors and that a fresh approach is appropriate.

"Remember that accounting is a picture of only one day in the operating life. And that essentially the accounting profession is a bankrupt profession subject only to its ability to conform to arbitrary rules devised mainly to protect the accountants and not the corporation, business or public it is supposed to serve.

"Public corporations are dynamic organizations always (hopefully) changing and heading in new directions designed to improve and enhance profits. Let's hope that CA management believes that they have made a change which will facilitate further positive growth."

Time will be the final arbiter.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.