Acme Edges Into the Enterprise

Acme Packet Inc. (Nasdaq: APKT) drifted a little down market yesterday with its $22.8 million purchase of Covergence, announced hours before Acme's first-quarter earnings came out. (See Acme Packet Acquires Covergence.)

"The acquisition clearly moves Acme Packet into the enterprise market by allowing it to sell end-to-end solutions for new features, such as SIP trunking, versus simply being a strategic partner," writes senior analyst Jim Hodges of Heavy Reading in an email reply to questions yesterday. "It provides them an established market channel, too."

Yes, by taking on Covergence Inc. , Acme now has a session border controller product for smaller enterprise locations and branch offices. Last month, it had launched into the enterprise space with the Net-Net 3800, but Acme says that product was aimed at branch offices and companies with 1,000 or more employees. It was smaller than what Acme had done before, but still kinda big. (See Acme Unveils Small SBC.)

By contrast, Covergence was hooking up smaller enterprises, with 500 to 1,000 employees, to service provider SIP trunking networks or larger corporate phone networks. Covergence made session border controller software, based on Linux, that could even be installed on off-the-shelf hardware to serve offices with as few as 20 employees. (See Covergence Launches SBC.)

With its Net-Net 3800, Acme took a step down the carrier-class, big-box ladder into the enterprise market. By buying Covergence, "we're now at ground level -- we've gone all the way down the ladder," says Seamus Hourihan, Acme's VP of marketing and product management.

It's unclear how far into the unified communications applications business Acme will go, as Covergence had some interesting assets there as well. (See Covergence Tackles UC.)

Covergence had raised more than $31 million in its life as a private company, and 39 of its 59 employees, which include full-timers and consultants, will join Acme at its headquarters in Burlington, Mass. On its earnings call yesterday, Acme said it has 70 enterprise customers without Covergence and Covergence had more than 100 enterprise customers on its own.

Acme's revenues for the first quarter of 2009 were down only 2 percent, while earnings and profits slid more noticeably. (See Acme Packet Reports Q1.)

Table 1: Earnings Snapshot: Acme Packet
1Q08 1Q09 Change (%)
Revenues ($M) 31.700 31.000 -2%
Net Income ($M) 5.000 2.800 -44%
EPS ($) 0.08 0.05 -38%
Share Price ($) 9.31 8.41 -10%
Source: Acme Packet
EPS and Net Income are GAAP; Share price current as of 12:25 PM EDT.

Acme brass says it expects to get $4 million in revenues from Covergence in the final eight months of the fiscal year, so that puts Covergence at about a $6 million a year business.

After noting that Acme's past revenue growth, one analyst says that upside of the session border controller market is still very high, but very hard to predict. "If carriers reaccelerate VoIP deployments faster than we currently anticipate, and if stand-alone SBCs prove to be the architecture of choice for carriers vs. integrated SBC functionality on routers and switches, revenues could reaccelerate faster than the 13 percent growth we currently forecast for 2009 and earnings could also exceed our forecasts by a wide margin," wrote JP.MorganChase analyst Ehud Gelblum, in a research note to clients this morning.

— Phil Harvey, Editor-in-Chief, and Craig Matsumoto, West Coast Editor, Light Reading

rwelbourn 12/5/2012 | 4:05:36 PM
re: Acme Edges Into the Enterprise

This is a great buy by Acme.  They get a product that has been having significant traction with large enterprises looking to deploy SIP trunking -- not the 500-1000 employee companies mentioned in the article -- and they gain four of the Fortune 25 as part of their customer base. 

Covergence's Session Manager was getting traction because of its scalability -- since it uses standard Intel-based servers it scales both up and down -- and because of its enterprise fit-and-finish.  Not only does Session Manager act as an edge element -- in other words, a conventional SBC -- it has also centralized routing capbilities and the ability to integrate with enterprise systems using LDAP/Active Directory and Web Services.

Covergence's customers will be happy knowing that the products they have bought will be supported by a financially secure company, and that the engineering and support teams have been preserved largely intact. 

Those who lost out are the VCs, and the one third of the Covergence employees who were laid off.  (Unfortunately I was one of them.)

Rob Welbourn

Formerly product manager, Covergence


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