Sponsored By

Telcordia Nearly Blew Granite Deal

At the eleventh hour, it almost lost the acquisition to Amdocs, says source close to deal

May 13, 2004

4 Min Read
Telcordia Nearly Blew Granite Deal

Telcordia Technologies Inc. nearly blew its recent acquisition of inventory OSS specialist Granite Systems Inc. at the eleventh hour, and almost lost the deal to rival challenger Amdocs Ltd. (NYSE: DOX), according to an executive close to the deal (see Telcordia Shells Out at Last).

The source, who wished to remain anonymous, confirmed that Amdocs had been close to snatching Granite from Telcordia's grasp during the final stages of negotiations, and that Telcordia had to do some last minute back-tracking over some conditions related to the acquisition.

As usual, there's a resounding silence from Piscataway, New Jersey. Because of its stated policy to refuse all media requests from Light Reading Inc. and its affiliated sites, we were unable to obtain comment from Telcordia.

Amdocs was equally as shy, declining to make an executive available for comment. A spokeswoman did, however, state by email that Amdocs "cannot confirm or deny speculation of its involvement with the Granite Systems deal."

And Granite's CFO, Barbara Labonte, failed to respond about the matter, possibly because of the media blackout policy instituted by its new parent company.

Meanwhile, Granite and Telcordia are coming to terms with the deal. Our source says that while there are no plans to lay off any of Granite's 120 or so employees, it's "inevitable" that some will jump ship, particularly members of the sales team. But the source says the industry rumor that Granite CEO Jay Borden will quit doesn't ring true, and that Borden has "no plans to leave."

And what of the corporate culture? Even Telcordia CEO Matt Desch admitted last week that Granite's entrepreneurial, startup mentality would be a breath of fresh air at the OSS giant. The source says there are "lots of internal politics, a battle between the old guard and the new" within Telcordia, with Granite adding some muscle to the more progressive elements.

Granite's main competitor in the inventory OSS space, Cramer Systems Ltd., is hoping to capitalize on that internal battle. Its director of product marketing, Robert Curran, says the acquisition will work in Cramer's favor, rather than create an even more formidable competitor.

Curran says the feedback from the industry is that the acquisition "has helped to polarize things for people. It means there's a much more obvious choice now between the component-type approach [of Telcordia/Granite] and our platform approach," he says.

And "there's a mood out there that people don't want to buy from Telcordia," adds Curran. "In effect, a player has dropped out of the market, rather than been swallowed up."

Another competitor was more subdued about the market impact. "This acquisition isn't unexpected," says Julie Wingerter, VP of strategy at NetCracker Technology Corp. "We'll be watching closely to see how things work out."

While the impact on the market is uncertain at present, the acquisition will definitely affect one thing – Telcordia's shrinking revenues.

The OSS giant has seen its annual revenues slip from $1.44 billion in its financial year 2002 (ending January 31, 2002) to $1.1 billion in 2003, and then slump to $892 million in the year that ended on January 31, 2004. Operating profits are also down, to $163 million in 2004 from $200 million the previous year.

Now Telcordia CEO Desch, who joined in July 2002 on a bumper salary of $500,000 a year (plus an annual bonus worth up to $750,000), is desperately seeking new revenue streams. Granite is reckoned to have annual revenues of about $50 million at present, and rising.

Telcordia needs that cash, as its main historical sources of revenue – the capex budgets of the RBOCs – are delivering fewer and fewer dollars. In a recent filing with the Securities and Exchange Commission (SEC), Telcordia's parent company, Science Applications International Corp. (SAIC), noted that "as a result of the changes and continuing challenges in the marketplace, Telcordia's customers, particularly the RBOCs, continue to reduce their contract spending and place significant pressure on Telcordia to reduce prices and accept less-favorable terms on existing and future contracts."

It continued: "During 2004, Telcordia signed contracts with four of the RBOCs to extend maintenance and enhancement support at a lower price for calendar year 2004. Competition for these services is increasing as certain software companies offer competing capabilities in certain areas and several of the RBOCs utilize their own information technology staffs. Telcordia is focused on opportunities for growth through the introduction of new products and diversification into new customers and markets.

"However, loss of business from the RBOCs or other commercial customers in the global telecommunications market could further reduce revenues and continue to adversely impact our business."

With the pressure on in North America, Telcordia will likely seek further targets that, like Granite, can deliver revenues from outside the U.S. market. Further acquisitions are almost inevitable.

And a precedent has been set: Granite was an existing partner in Telcordia's Elementive OSS strategy, and Desch said last week that "there's value we can bring to our customers by having tighter integration with some [of our partners]." That should set the alarm bells ringing at Atreus Systems Inc., CoManage Corp., i2 Technologies Inc. (Nasdaq: ITWO), Micromuse Inc. (Nasdaq: MUSE), and Sheer Networks Inc.

— Ray Le Maistre, International Editor, Boardwatch

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like