Look Ma Bell: No Echoes

Coherent Communications of Leesburg, Va., is perfecting the way phone users communicate

P> Plain and simple: This is the story of a company -- Coherent Communications in Leesburg, Va. -- that took nearly three decades to find success.

The company has achieved that success -- a quintupling of its stock price since 1994 -- by combining the niche technology of echo cancellation with a relentless focus on cementing partnerships with the biggest telecommunications companies. As a result, Coherent has been able to achieve more than 30 percent annual growth since 1990. The $30.5 million company has alliances with telecommunications equipment suppliers and network operators such as AT&T, Alcatel, Nokia, TRT, NEC, ECI, Stratacom, Nortel, Motorola and Intel.

Coherent's technology cancels out the bounce-back or echo effect often heard in a telephone conversation or through a loudspeaker system. "Echo cancellation is a very sophisticated way of removing echo," said David Powell, president and chief operating officer of Coherent. "You can no longer treat it as a hobby." Just over a year ago the English-born Powell was promoted to president after having served as managing director of Coherent's European subsidiary. At 43, he comes from an extensive telecommunications background. In 1966, he worked on one of the original telephone systems in Britain, developing the original switch found in a telephone circuit, now obsolete.

In 1968, the company developed its echo cancellation technology in New York for analog circuits. But Coherent realized that the telecommunications market would embrace digital technology. So in the late 1980s, Coherent made its first and only acquisition -- COMSAT Telesystems in Merrifield, Va., a division of the satellite manufacturer.

Coherent is now the only company in the echo cancellation market that specializes in the two major market segments -- hybrid and acoustic echo cancellation.

Hybrid echoes are reflected signals that bounce back to a speaker through a telephone transmission. An acoustic echo is associated with audio transmission in a high-noise environment such as teleconferencing.

"In the cellular circuit, the operators want one company to provide the solution for both problems," said Powell.

Although Coherent traditionally used distributors to reach these operators and users, it found that companies that use echo cancellation technology prefer dealing directly with the manufacturer. That preference largely has driven Coherent's push to form alliances, which began in 1988 with its first alliance with Alcatel SEL in Germany.

But these partnerships can hurt sometimes. When partners such as Motorola announce losses in a quarter, Coherent stock prices go down with them, Powell said.

Nevertheless, Coherent's decision to go public in 1994 has opened up new opportunities. Its stock has risen from $5 to as high as $28. Although Coherent has not reported its 1995 revenues, Douglas Ashton, a telecommunications analyst at Hancock Institutional Equity Services in Boston, expects the company to generate a 33.8 percent increase in sales this year to $50.6 million. In 1994, Coherent's net income increased eightfold to $3.8 million from the previous year. That figure nearly doubled for 1995 to $7.6 million, according to figures released this week by the company.

Meanwhile, its headquarters remains firmly planted in telecom-rich Northern Virginia, where low-slung, high-tech structures share the landscape with horse stables, toll roads and golf courses. In 1992, Coherent relocated its headquarters from Long Island, N.Y., to Leesburg in an attempt to create a more enjoyable environment for clients. Coherent's European customers did not like the congestion and noise of New York, said Powell. Now the company sits on Lansdowne Resort, overlooking a golf course.

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