If you call tech support for Dell
eTelecare serves top companies, earning higher rates by focusing on higher-value areas that require such credentials as the NASD securities license or Microsoft's
eTelecare's managers are metrics junkies. Employees each have performance scorecards tied to their compensation. eTelecare also shows those metrics to customers, to demonstrate the value it adds to their bottom lines. It's been yet another clever way for the company to command better pricing.
The company maintains call centers in the U.S. and the Philippines. The latter location offers lower-cost workers who speak American-accented English, while the U.S. centers help the company woo customers who may be initially concerned about lackluster support from foreign sources. Once those customers get used to the service, and grow more comfortable with international support workers, eTelecare can move them over to Filipino-based call centers, fattening its margins.
That two-part formula has worked well. From 2004 to 2006, eTelecare's revenues doubled to $195.1 million. Last year's net income was a tidy $12.4 million.
That said, I'm concerned that 80% of eTelecare's revenues come from only five customers, and that most of its contracts can be terminated without cause. Back in 2005, a major customer reduced its volume requirements for technical support, slashing eTelecare's margins from 5.2% to 2.7%.
eTelecare has built a solid platform, and it's benefiting nicely from the outsourcing megatrend. Yet its customer concentration leaves it little margin for error. Foolish investors should probably let the company gain a bit more critical mass before considering an investment.
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