May 31, 2007, 12:00 AM

Long-time CEO makes a sudden exit from Internet utility VeriSign

VeriSign isn’t saying why Stratton D. Sclavos resigned suddenly, after a 12-year run that turned the company into a key provider of Internet infrastructure. But investors don’t seem concerned, and one observer believes retailers will see little impact.

 

VeriSign Inc. provides crucial pieces of the foundations of e-commerce, so when its long-time CEO resigns suddenly, online retailers might wonder if there is cause for concern. Wall Street appears to think not, as VeriSign’s share price rose more than 10% in the two days since the announcement, and at least one observer believes retailers will see no impact in the short term.

“Nothing is going to change in terms of levels of service, or what they do day to day,” says Georges Yared, founder of investment advisory firm Yared Investment Research and a former president of Dean Witter’s Canadian unit.

That’s good news for Internet retailers because VeriSign is crucial to the Internet’s functioning. The company maintains the domain names .com and .net and provides digital certificates used to secure e-commerce transactions.

Stratton D. Sclavos played a central role in building the company in his 12 years at the helm, and his sudden resignation from the posts of CEO and board chairman raised eyebrows. Investment analysts were clearly surprised to be summoned to a 5:30 a.m. Pacific time conference call to introduce the new CEO, William A. Roper Jr., and board chairman, Edward A. Mueller. Roper, who has been on the VeriSign board since 2003, previously was an executive at Network Solutions, the company that brought the domain registry business to VeriSign in a merger in 2000.

Roper repeatedly deflected questions from analysts about why Sclavos was leaving. He implied that the management shift was not a result of an ongoing review of the company’s stock option practices that have forced VeriSign to restate earnings, saying that top executives, including Sclavos, have been cleared of intentional wrongdoing.

Yared speculates that there was a disagreement between Sclavos and the board on the company’s direction. He says the board might have wanted to focus on the lucrative core businesses of domain registration and digital certificates, while Sclavos may have sought new worlds to conquer. “Stratton, who has been very acquisitive, probably wanted to expand VeriSign into other areas,” Yared says.

One area Yared sees as well suited for VeriSign growth is radio frequency identification, or RFID, the technology for tracking merchandise as it moves through a supply chain. He says VeriSign has the infrastructure to assign an Internet Protocol address to billions of radio frequency tags and to keep track each time those tags are scanned.

“VeriSign is handling 14 or 15 billion .com and .net requests per day, but their system can accommodate 400 billion inquiries,” says Yared, who has recommended VeriSign stock to his clients. “So they have a lot of capacity to expand.” He notes VeriSign already has a small unit working in RFID.

No one appears to be concerned about VeriSign’s financials. The company recently reported first-quarter revenue of $379 million, up nearly 2% from $373 million in the same quarter a year ago. The company reported cash on hand of $740 million and record-high deferred revenue of $662 million.

VeriSign also took a step that figures to guarantee higher revenue going forward, raising the annual fee for a .com domain name from $6.00 to $6.42 and a .net domain from $3.50 to $3.85, increases in line with the company’s long-term agreement with the Internet Corporation for Assigned Names and Numbers, or ICANN, the nonprofit organization that manages the Internet’s identification system. Those increases take effect Oct. 15.

 

 

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