DeClout's vision in the cloud

PHOTO: DeClout's vision in the cloud

IT has not been the smoothest first year for DeClout as a listed company since its initial public offering (IPO), what with a languishing stock price and its bottomline in the red.

Still, group CEO of the next-generation technology service provider Vesmond Wong tells The Business Times that the company is continuing to make steady calculated strides towards its vision - to be the leader in creating vertical domain clouds (VDCs) in Asia.

VDCs, a term the company coined, are platforms that use cloud computing technology to serve specific industries or market niches, allowing various stakeholders within these communities to interact, collaborate, even transact.

Mr Wong cites professional social network LinkedIn as one good example of a VDC. Its domain, human resources, is integrated with IT to make it a social ecosystem of professional profiles. LinkedIn is then monetised through its hiring services offered to companies and the account upgrade option for users.

This is as opposed to horizontal clouds, which are generic offerings from big guns in the likes of Google, Amazon and IBM to the broader horizontal marketplace.

DeClout has picked gaming as its first domain to develop. It plans to build a portal where gamers can access a variety of online games, interact with other gamers, and pay using a common virtual currency across South-east Asia.

This is coming together slowly. The cloud infrastructure is up, with more than 20 game publishers hosting 50-odd games on it in four countries. But the unified payment infrastructure and gamers' community portal will only go live either at the end of this year or early next.

The VDC segment's very gradual progress shows in DeClout's latest half-year results, where it contributed only 4 per cent, or $1.1 million, to the company's revenue. The segment's gross profit of $332,000 makes up just 6 per cent of total gross profit of $5.3 million.

After expenses, however, DeClout incurred net losses of $2.2 million at the group level, versus profits of $272,000 a year ago. Its shares have more than halved from its IPO price of 25 cents to 12.2 cents on Friday's close.

Mr Wong says he is concerned. "Share price is a function of our deliverables, which we have yet to deliver, be it in terms of numbers or the execution of our plans."

He adds: "As a CEO, I'm supposed to bring value to all the shareholders. But I'd say the share price is not really reflective of our business right now, and it is my job to explain clearly to the community how they should value us in totality."

What's hardest is having to balance between pushing the VDC strategy and the company's financial health.

Mr Wong says: "I cannot over-invest and create a dent on the company's performance, but neither can I be neglecting it because this is our mid-to-long term strategy."

VDCs are but one end of the spectrum of DeClout's business, he says. On the opposite end of the spectrum is its IT asset recovery segment, also its bread-and-butter business, parked under its unit Asvida.

Mr Wong terms Asvida a "reverse logistics" company. If traditional "forward" logistics firms collect parts, assemble them, and sell the finished products, then Asvida's business of collecting traded-in second-hand products to either trade the parts, or re-use them for maintenance or to build another system according to a customer's required configurations, is exactly the reverse.

This is especially useful for disaster recovery - ensuring that critical business functions such as banking and telecommunication systems stay accessible when disruptive events occur - since this does not require the newest and latest equipment. A refurbished set could as well do the trick.

It is very profitable business, with low costs and high gross profit margins of nearly 30 per cent, says Mr Wong. The only drawback is that it is often viewed as an unglamorous "grey business". That is why DeClout hopes to professionalise this segment by mounting a global expansion plan and escaping the constraints of the small Singapore market.

It started in April this year with the acquisition of a stake in US-based Procurri, a company also in the business of refurbishing used equipment for re-deployment or resale. This move is already bearing fruit: three months of Procurri's operations have contributed $5 million, or 18 per cent, to the group's revenue of $27.6 million in the first half. DeClout has given itself until the first quarter of next year to complete similar acquisitions in Europe and China.

There are two other units under DeClout's IT infrastructure division: Beaqon, which provides telecommunications and network infrastructure services; and Acclivis, which provides IT solutions to clients.

Beaqon was the nasty surprise in DeClout's half-year results after its next-generation nationwide broadband network projects reported lower revenue and profit on rising foreign worker wages, as well as lower margins from its new 4G mobile infrastructure rollout projects due to the higher hardware cost component involved.

Beaqon is also trying to move its value chain towards building its own multiprotocol label switching (MPLS) communication lines in South-east Asia. This is a kind of high-speed network that directs data across geographies from data centre to data centre and will be able to help support its VDCs too.

"Cloud computing is about performance of the communication lines. People don't want a lag-time when they send emails. This is not a public line that we're using; it is a dedicated line that we will own. The assurance of speed will be within our control. It doesn't loop one big round as it might on a public line. Here, it's direct point to point," says Mr Wong.

As for Acclivis, it manages customers' IT systems round the clock against threats, on or off the cloud, and recovers their operations in times of disaster. The latter function is also critical for the ecosystem of clouds because users expect them to be up 24/7, Mr Wong says.

Acclivis is currently leasing and managing "100 over" datacentre space for customers and itself. Meanwhile, it is also transforming to become a cloud operator. In July this year, it became Microsoft's first Asian partner to offer hosted productivity cloud solution to Microsoft's customers.

"What this means is: Microsoft has this Office 365 product hosted on a public domain, which many governmental and financial customers cannot go onto due to the lack of data integrity on public clouds.

"Now Microsoft has realised it's missing out on a big chunk of this business, so it has invited us to become a partner to host a private cloud environment in Singapore, and it will refer all its customers in the government and financial sector to us."

In the end, everything DeClout does comes down to this - to build a solid base for its VDC business to come onboard.

But for analysts, seeing is believing. Until something materialises, it is hard to convince the market. AmFraser's Valerie Chan has said that DeClout's gaming VDC "remains a wildcard" and will take a while to achieve economies of scale and profitability, with expected small losses for the next two years.

Still, Mr Wong is undeterred, determined even to reward shareholders who believe in the company's vision.

"To be able to reward these shareholders would be the day we consider ourselves successful. But we are a very high-growth company, so it is difficult for us to pay dividends because we are taking a lot of cashflow back to reinvest in the business."

There is another way to reward shareholders, however, he says.

"What we are hoping to achieve is, in any of the mature lines of businesses that we have developed, once we are able to unlock value from them, then I think that will be the time that we can reward and thank our shareholders."

This column is an expanded version of CEO Speaks, where views are curated from a wider range of corporate leaders to better capture all that's going on in the business world.

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