How Mitel suddenly lost its glamour

Mitel Corporation, the high-flying, high-tech Canadian concern, has lost some altitude. It recently missed out on a potentially lucrative deal with IBM for its latest product, a large PBX (private branch exchange) switch, after more than a year of delays.

It was the first major setback for the 10-year-old world leader in PBXs. The lateness in making the system and the forfeited IBM contract have soured the stock market's love affair with the company. Mitel's stock has gone from a high earlier this year of $37 down to about $15 these days.

Mitel has been the Wunderkind of the Canadian high-technology world and the pride and joy of the Canadian government, which has showered it with development grants and loan guarantees. The company was founded in 1971 by Terry Matthews and Michael Cowpland, two employees of Microsystems International, a subsidiary of Bell Canada.

The two men started putting together printed circuit boards for telephone switches. In 1975, Mitel had 30 employees and annual sales of $30,000. Last year , it had 5,210 employees and sales of $255 million. But all is not rosy at Mitel. Profits were cut in half last year - from $28 million to $14.8 million - and the company has yet to make a cash sale of its new SX 2000 switch.

The drop in business has left Mitel with too much plant capacity. The two founders had predicted a billion dollars in sales by 1985 and had built to match their expectations, according to Fred Larkin, an analyst with Wood Gundy in Toronto.

Mitel will close its plant in Burlington, Vt., on Sept. 1, just two years after it opened. It has mothballed another plant in the province of New Brunswick.

Another reason for the profit drop was an accounting change. Analysts used to be critical of Mitel for using Canadian instead of American accounting techniques when measuring research and development costs. For instance, Northern Telecom, a Canadian-based company in the same business, uses the American rules. Analysts were comparing apples and oranges, and Mitel looked more appetizing.

''It's hard for us to say why IBM made their deal with Rolm. But it's not as important as some people think,'' says Mr. Cowpland, who adds that out of 500 systems to be shipped next year only 40 were going to IBM. Cowpland says the company is sold out of SX 2000 switches - capable of handling from 250 to 10,000 lines, depending on the version - for the next two years.

Mitel's reputation rests on whether it can get its new product out when now promised. If it can ship as many sets as it can build, Mitel will continue to be a moneymaker.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.