First the NY Times ran a big story "Do you speak Uzbek: Translators are in Demand" on October 21st. By my estimation this is the first story on languages since 1989. Time magazine saw the story and ran its own on November 18th with the title "Parlez Vous Profits." Whenever big media cover the language industries they use very simplistic "hooks " to grab the average reader's attention. In the case of the NY Times it was exoticism (Uzbek) while the Time story used high school French "Parlez Vous Français."

What was interesting in the coverage was that the big media only wanted to cover what big companies were doing—which meant that Lionbridge, Bowne and Berlitz Global Net got the lion's share. There wasn't much to write about the demand for Uzbek, so the stories ended up focusing on the growth of the industry. But the coverage didn't affect any of the firm's stock prices, although it might have caught the eye of a venture capitalist interested in the translation and localization industries.

We can be sure that US government money will be flowing into the language industries to develop better capabilities to decipher Arabic, Farsi, Pashto and Dari text. At last count, there were about 13 different languages involved in the Afghan conflict. Remember it was the Cold War that led to the US Department of Defense financing machine translation from Russian, and this still benefits Systran. Since Russia is our friend if not ally, this effort will now be directed towards less-used languages. The private sector will be asked to speed this development. The Defense Language Institute will head up the US military language efforts, teaching Middle Eastern language and acquiring technology. But its take on important Middle Eastern languages is Arabic, Hebrew, Turkish and Greek.

The makers of Palm and Handspring are now working to make military applications for their products an essential part of their market. A company called Military Advantage (www.military.com) now sells Palms with basic military applications. The site offers a free Afghan map and a Pashto-English lexicon is included among other features.

If we sit back now and look at what the events of September 11th meant to the language industries, in the short run the impact has been negative. Commerce stopped, a recession began, and companies wondered if they should spend money on translation and localization.

In the long run, however, it will be bullish. In a very thoughtful editorial piece in the NY Times (11/18/01) Margaret Talbot noted that the US substituted the phenomena of multiculturalism for real knowledge of a culture. She noted that in 2000, only six people graduated with a Arabic major in the US and only 20% of US colleges have a foreign language requirement for graduation, compared to 34% in 1965. Talbot concludes that multiculturalism has led to US cultural isolationism. We were lulled into thinking that we were getting a global education and educating the world. "Multiculturalism may not have prodded us to study cultures fundamentally different from our own; the war on terrorism will have to do the job."

The companies

As we go to press, Lernout & Hauspie's (LHSP.OB) assets are being auctioned off by the US and Belgian bankruptcy courts. With Mendez safely tucked inside Bowne, this last auction might be all we hear about L&H for the foreseeable future.

The various pieces of L&H were divided into eight parts and then grouped into three major sections: text to speech software, speech recognition technology and dictation software. A company called ScanSoft bought most of the first two parts. Of interest to LISA readers is what was left of machine translation was bought by Bowne for US $501,000. What Bowne got were the "intellectual property rights for all products built on the Barcelona machine translation engine-encompassing enterprise, online and end user solutions, as well as lexicons and related tools, in 22 language directions."

The auction as a whole yielded approximately US$ 40 million in stock and cash. So if we add the sale price of Mendez sold off earlier to these results, a company that once had a market valuation of US$ 12 billion was liquidated for approximately US $ 90 million!

Clearly, the economic star in the translation and localization industries these days is Bowne (BNE) and it subsidiary Bowne Global Solutions. Firstly Bowne was selected as one of top ten turnaround candidates for 2002. As one analyst wrote "As a turnaround investor I like to invest in companies that are unloved and unappreciated. My first pick fits the bill nicely—Bowne. It is a US$ 370 million small cap with US$ 1 billion in sales. It is the leading financial printer in the world and happily very profitable. This unloved US $11 stock is down from its all time high above US $22. Only five years ago, 100% of its business was printing, whereas now it is 70% printing, 22% outsourcing and 8% globalization."

Bowne Global Services, headquartered in Parsippany New Jersey, announced its third quarter results which showed revenues of US$ 25,3939,000 and EBITDA of US$ 1,973,000. For the nine months, the figures were US$ 67,596,000 and US$ 4,491,000 representing a growth of 39% and 256% over the same period in 2000. Carl Glaeser, CEO of BGS noted that "the quarter included only one month of revenue from the Mendez acquisition. Year to date results would reflect revenues of US$ 120 million and EBITDA of US$ 11 million had the companies been combined at the beginning of the year."

Lionbridge Technologies (LIOX) also announced third quarter results. Total revenue for the third quarter reached US$ 25.9 million and a net loss of US$ 7.6 million. The company reported a cash balance of US$ 10 million for the quarter. Reflecting on these results Lionbridge's CEO noted "Throughout the individual months of the third quarter we began to see an uptake in demand. These factors can be seen by our September gross margins of approximately 40% and near EBITDA breakeven despite the events of September 11th."

Berlitz GlobalNet's results are harder to find since it is one of 18 subsidiaries of the Benesse Corporation listed on the Tokyo Stock Exchange. Benesse is a US$ 2 Billion dollar conglomerate that has long been in the translation business through Simul International Inc. Benesse's net income in 2000 was US 130 million so it is in a position to make additional acquisitions. When Alpnet announced on September 25th it was the subject of an unsolicited bid for a controlling interest, the buyer was rumored to be Berlitz GlobalNet. We have heard no more of this bid since.

ALPNET (AILP.OB) itself would seem to be in dire straights. Its stock is trading at 14 US cents and it got a US$ 2 million dollar loan to see it through to 2002. The loan is repayable at 8% interest on May 13, 2002 and the collateral was the stock of its Canadian subsidiary and certain software. The chat lines have been vicious as always. " Looks like they are just waiting for the end. They waited too long to take any corrective action, insiders sold out on the pump, now no one has enough interest to fight it out…The problem with ALPNET is they don't have anything to sell but their service, and the competition can just sit and wait to pick up the customers." Sales for the first nine months totaled US$ 35 million with a loss of US$ 2 million. Yet as we go to press they announced a new contract from Fokker.

SDL (SDL PLC) said its nine month sales are up 27% from the previous year and has net cash of £10 million. It stock is trading at around 75 pence. Cumulative nine month figures for 2001 showed sales of £25.37 million with a loss of £1.97 million. During this period, it bought the multilingual software vendor Language Partners International. The purchase price was given as 95,914 new ordinary shares of SDL stock.

Across the channel, Systran (French Nouveau Marché (Sicovam Ticker 7729)) released its six month figures which showed sales of FRF 28,695, 000 compared to FRF 29,350,000 and profits of 1,752,000; down from FRF 3,307,000 the year before. Its stock price has been trading at around €1.70. Given Systran's background in developing machine translation capabilities for the Defense Department in Russian-English pairs, it might be getting calls about Arabic and Central Asian languages these days.

Both Trados and Uniscape tapped into the Asian venture capital markets for additional funding. Uniscape got an additional US$ 18 million from Asian investors (Mitsui, EDS and OCBC Bank Group) bringing it total to US$ 36 million. Meanwhile Trados got an additional US$ 4 million, primarily from Mitsubishi.

Meanwhile, we have had more consolidation as the Logos Group in Modena Italy acquired two firms including the well-known UK firm Praetorius.

John Freivalds (JFA@worldnet.att.net) is a long-time contributor to the LISA Newsletter and market analyst. His "Money Talks" column has regularly appeared in the LISA Newsletter for more than two years. He is currently with JFA International.

Director's Letter