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Does Anyone Want Sonus?

Phil Harvey
The Philter
Phil Harvey
2/6/2013
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Now that Oracle Corp. is buying session border controller vendor Acme Packet Inc., what happens to Sonus Networks Inc.? Is Sonus now a target itself by a larger company like Cisco Systems Inc.? The theory is out there, but at least one analyst says Cisco's pretty well set without Sonus's help. In a note to clients this week, Northland Capital Markets analyst Catharine Trebnick wrote:

    We don't believe Cisco will move to acquire Sonus Networks at this time. Why? Cisco has an enterprise SBC (CUBE) which has been gaining acceptance in the enterprise segment. According to Infonetics, in 1H'12 Cisco's enterprise SBC market share jumped to 26 percent, up 3 points Y/Y. On the carrier side, the ASR 5000 has had SBC capabilities since Cisco acquired Starent back in Oct. 2009.
What about other competitors? Perhaps they'll be able to pick off a little of Acme's market share while its execs are picking out Corvettes. For more:
— Phil Harvey, Editor-in-Chief, Light Reading

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brookseven
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brookseven,
User Rank: Light Sabre
2/8/2013 | 5:36:12 PM
re: Does Anyone Want Sonus?
One of my bosses described a Telecom Equipment model that became more like the Aircraft industry. -ŠIn both cases, there are a limited number of regulated customers and there were too many suppliers. -ŠHis take was that there would be many fewer major suppliers and a moderate number of smaller specialists (Think of Boeing and Bombardier or Cessna). -Š

I have agreed with that model and companies like Sonus have to be a specialist. -ŠThey simply don't have the scale to get there. -ŠIf they want to sell the business, then they need to be at the bleeding edge of a new wave. -ŠThere are ways to structure R&D to get there, but you won't get there without risk.

seven
Phil Harvey
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Phil Harvey,
User Rank: Light Beer
2/8/2013 | 3:54:14 PM
re: Does Anyone Want Sonus?
-ŠYes, I can see that Sonus would have to do quite a bit to prime itself for a breakup. And, of course, my original piece was just to address the market speculation. When folks see one M&A deal, they always expect others to follow soon.

In this case I'm not so sure. Consolidation is still needed in a few telco infra areas but there's also a good argument to be made that network specialists can react more quickly to customers and be more nimble. So maybe the whole world won't end up working for Cisco after all.
brookseven
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brookseven,
User Rank: Light Sabre
2/8/2013 | 3:20:43 PM
re: Does Anyone Want Sonus?
You should be able to detect a break up. -ŠThere can be value in that but Sonus (if they really think this is a good idea) would take steps to make it happen. -ŠIn such a move, they would make the company more modular so untangling it would be easier. -ŠHaving experienced a very tangled acquisition it would make things a lot easier to do.

seven
Phil Harvey
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Phil Harvey,
User Rank: Light Beer
2/7/2013 | 10:25:04 PM
re: Does Anyone Want Sonus?
-ŠOr we could split it up -- Genband takes the VOIP infra and Ericsson takes the SBC software and such.

Alcatel-Lucent could sell its enterprise unit to a private equity firm, which could then add some or all of Sonus.

There are a lot of ways this could happen. Most interesting, though, is to see companies that aren't traditional telecom infra providers (like Oracle) getting bigger, faster in this space.
brookseven
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brookseven,
User Rank: Light Sabre
2/7/2013 | 7:07:37 PM
re: Does Anyone Want Sonus?
Phil,

The way to answer your question is this:

What does Sonus have that other companies might want?
Who might have the capital to pull off that kind of acquisition?
Who in a similar space or adjacent space?

In the first question, one identifies the assets that an acquirer would want. -ŠFrom there, the list gets narrowed by getting down to the possible acquirers. -ŠThe market cap is $760M and enterprise value is about $480M. -ŠSo, let's say you get 2x EV + 1x (MC-EV) for a value of about $1.2B.

So....who could throw around $1.2B and wants into the SBC/VoIP Carrier space?

That would narrow it down.

seven
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