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NEC to Buy Convergys Unit for $449M

Ray Le Maistre
3/22/2012
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NEC Corp. (Tokyo: 6701) subsidiary Netcracker Technology Corp. , already one of the biggest Service Provider Information Technology (SPIT) vendors in the world, is set to get even bigger with the planned acquisition of Convergys Corp. (NYSE: CVG)'s Information Management telecom software business unit for US$449 million.

The Information Management unit, which has about 2,500 staff and about 150 customers, is a well established supplier of billing, customer care and revenue management systems to utility and logistics companies as well as to mobile, fixed-line and cable operators. (See Convergys Launches CRM 2.0, Convergys Touts Progress With Telekom Deutschland, SmarTone Upgrades Convergys BSS, Cox Reups With Convergys and Orange Austria Picks Convergys.)

In 2011, Convergys's Information Management unit generated revenues of $328.8 million, down 3 percent year-on-year, and operating income of $37.2 million, up 12 percent compared with 2010.

When it announced its full-year 2011 results on Feb. 7, Convergys estimated full-year 2012 revenues for the Information Management unit of $330 million to $340 million, a slight year-on-year increase.

The acquisition is expected to close during the second quarter of 2012.

The Information Management will become part of NetCracker, which currently boasts a broad range of OSS capabilities and significant (but unspecified) annual sales of hundreds of millions of dollars, the bulk of which comes the NEC network management systems the Japanese vendor folded into NetCracker following its acquisition in June 2008. (See NetCracker Flexes Its SPIT Muscle, SPIT Watch: CA, NEC Bulk Up and NEC Shells Out $300M for NetCracker.)

NetCracker added to its OSS assets in 2011 with the acquisition of Subex Ltd. 's IP service fulfillment business line, though that was a relatively small transaction. (See Subex Offloads Its Problem Child.)

NEC's rationale for buying the Convergys unit is that, once the deal is closed, it will be able to offer communications service providers (CSPs) and enterprises a full range of OSS and BSS tools that can be deployed by the customer, offered as a managed service or provisioned as a cloud service.

Why this matters
The deal makes NetCracker not only one of the biggest SPIT vendors globally but one of the few that would be able to offer such a broad range of operation and business support tools, making it a stronger rival to the likes of Amdocs Ltd. (NYSE: DOX) and Oracle Corp. (Nasdaq: ORCL).

The deal will also strengthen NetCracker's proposition in other vertical sectors that it has already been targeting, such as utilities. (See NetCracker Looks Outside Telecom and NetCracker Wins Utility Deal.)

In terms of the broader market, the move extends the gap between the major telecom software vendors, such as Amdocs, Comverse Inc. (Nasdaq: CNSI), Ericsson AB (Nasdaq: ERIC) (following its acquisition of Telcordia), HP Inc. (NYSE: HPQ), IBM Corp. (NYSE: IBM) and Oracle, that can offer a broad range of products and support R&D operations from their cashflow, and the hundreds of smaller SPIT players that have targeted products.

With the emphasis more and more on providing CSPs with broader packages of integrated capabilities, the likes of NetCracker are likely to get stronger, while the smaller, vendors are likely to find it even tougher to generate new business.

For more

— Ray Le Maistre, International Managing Editor, Light Reading

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