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UTStarcom Jumps on Pedestal

Light Reading
Supercomm News Analysis
Light Reading
5/25/2005

Equipment giant UTStarcom Inc. (Nasdaq: UTSIE) has bought Pedestal Networks Inc., a maker of remote, line-powered DSLAMs, for an undisclosed sum, Light Reading has learned.

Brian Caskey, VP of international marketing and strategic technology for UTStarcom, says the deal gave UTStarcom a remote DSLAM, which it didn't have, and further adds to its ability to provide carriers with end-to-end IPTV networks.

The latest announced iteration of Pedestal's Universal Broadband Server (UBS), which debuted in 2003, was able to deliver 3 Mbit/s of asynchronous DSL (ADSL) service to users as far as 50,000 feet from the carrier's central office. With that version of the product, carriers could provision up to 3 Mbit/s per subscriber in 32-kbit/s increments, giving them lots of flexibility around how they sell their bandwidth services (see Pedestal Displays DSL Gear).

Since acquiring Pedestal on May 13, however, UTStarcom has apparently enhanced Pedestal's technology and is viewing it as a component to mVision, its strategy of providing end-to-end IPTV networks (see UTStarcom Launches IP TV System). Corey Geiger, now general manager of Pedestal's business at UTStarcom, told Light Reading on Wednesday that the company's newest UBS devices can support ADSL2+ and can deliver the 15-Mbit/s to 25-Mbit/s minimum bandwidth required to deliver IPTV to subscribers across telecom copper networks.

Pedestal raised about $34 million in financing during its life as an independent company. The company's product was a finalist for a Leading Light award last year, but soon after it was bested in that contest. The company confirmed layoffs and a flaw in its initial strategy of targeting all carriers great and small (see Pedestal Taken Down a Notch and LR Produces Private Product Finalists).

UTStarcom says Pedestal had only about 20 people at the time of acquisition, down the 57 it had at the beginning of 2004 (see Laying Off Layoffs).

It's no secret that UTStarcom is scrambling to become a more diversified company. Since the purchase of 3Com's CommWorks portfolio, the company has been making moves here and there to add to its penetration into North American carriers (see UTStarcom Cops CommWorks).

Table 1: UTStarcom Goes International

Metric UTStarcom
China Sales, 2001 ($M) 566
China Sales, 2004 ($M) 2,133
CAGR 56%
International Sales, 2001 ($M) 61
International Sales, 2004 ($M) 570
CAGR 111%
Total Sales, 2001 ($M) 627
Total Sales, 2004 ($M) 2,704
CAGR 63%
Proportion of Sales Outside China, 2001 10%
Proportion of Sales Outside China, 2004 21%
Source: Light Reading Insider




Last week, UTStarcom CEO Hong Lu outlined his vision for the company, which is making the transition from dependence on limited-mobility personal access system (PAS) revenues in China to a more diversified company, selling mobile handsets in the Americas and broadband equipment (IP DSLAM, IPTV, GPON) globally. (See UTStarcom: We’re Not the Cheapest, China's 'Big Three' Eye IPTV, and this month's edition of Light Reading Insider, Telecom's China Syndrome, which analyzes the strengths and weaknesses of UTStarcom, Huawei Technologies Co. Ltd., and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763).)

The purchase of Pedestal gives UTStarcom an impressive product that makes sense as part of a portfolio, but wasn’t likely to sustain a large, profitable company. That said, the scope of such an acquisition isn't enough to send analysts into hysterics.

"I see it as a marriage of convenience," says Millenium Marketing principal analyst Kermit Ross. "It's not terribly profound or strategic… Pedestal has some interesting capabilities and a couple of customers, but only a couple."

Former Pedestal exec Geiger says his company had well more than a dozen customers, but the company has only talked specifically of its marquee account, Cincinnati Bell Inc. (NYSE: CBB). (See Pedestal Server's Ready for RBOC.)

UTStarcom has made other IPTV-related acquisitions over the years. In 2003, it bought RollingStreams Systems, a media switch and gateway maker, and Xebeo Communications Inc., makers of an optical packet switch that could classify, queue, shape, and police traffic at very high speeds (see UTStarcom Nabs RollingStreams, Xebeo).

— Phil Harvey, News Editor, Light Reading

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