SDN Technology

Sonus Buys Itself an SDN Story

Sonus Networks has enhanced its portfolio with the acquisition of SDN technology assets from Treq Labs for an initial sum of $10.1 million. The acquisition closed on January 2.

The Treq technology is applicable to service provider and enterprise networks, with Sonus Networks Inc. (Nasdaq: SONS) citing Asia-Pacific operator Pacnet (which is currently being acquired by Telstra) and financial services firm State Street as existing users. (See Telstra Snaps Up Pacnet for $697M.)

According to Sonus, Treq's SDN solution combines "programmatic network control with network state awareness and application policy to deliver real-time SLA (service level agreement) assurance." Sonus intends to offer the Treq software alongside its session border control (SBC) and policy management technology to deliver "real-time application layer network performance and analytics. Together with Treq, Sonus is creating a new architecture for service delivery," the company stated.

For more details on Treq's technology and the benefits Sonus believes it can deliver, see the full press release announcement, Sonus Buys Treq Assets, Updates on Q4.

If Sonus manages to grow its SDN sales in the coming years it will award "earn-out" stock payments to Treq Labs: about 6.6 million shares if SDN-related revenues reach $60 million in the three-year period 2015-2017 and up to 11 million shares if SDN sales hit $150 million during that period.

Sonus shares are currently valued at $3.92.

The vendor has also announced a reverse stock split on a basis of 1 share for every 5 current shares, effective January 30, a move that will reduce the number of shares from about 250 million to about 50 million.

It also stated that fourth-quarter revenues will come in at around $77 million, at the low end of its previously stated guidance. "Our guidance for the fourth quarter reflected the possibility of limited-to-no budget flush from our service provider customers… this proved to be the case," stated CFO Mark Greenquist in the vendor's official announcement, adding that adjusted earnings are set to be in line with guidance at $0.03 per share.

Sonus expects its revenues for 2015 to grow by 10% compared with the $296 million it is due to report for last year. More details will be provided during the company's next earnings conference call on February 18.

Want to know more about the emerging SDN market? Check out our dedicated SDN content channel here on Light Reading.

Why this matters
The race is on to offer network operators more flexible network management and operations capabilities. Sonus has already developed virtual versions of its existing SBC product line and will now be able to offer proven SDN tools that enable operators and enterprises to run programmable networks. With an initial cash outlay of just $10.1 million this looks like a sound strategic move by Sonus.

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— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

DOShea 1/9/2015 | 9:54:18 AM
Re: Looks like a sound move Aside from the SDN angle, analysts seem to be expecting Sonus to cash in on increasing VoLTE deployments, which could make the Performance Tech acquisition from last month just as important.
danielcawrey 1/8/2015 | 3:28:11 PM
Re: Looks like a sound move Seems like a pretty good deal for Sonus. I bet in time this acquistion is going to prove to be worth lots of money as an SDN play.

Getting the technology early is smart, as I still think SDN is still a bit off in terms of the eventual gold rush that often happens with these new technologies. 
bosco_pcs 1/8/2015 | 1:48:49 PM
Re: Looks like a sound move Ray: the acquisition looks sound. Investors are reacting to the reverse split - I am! - announcement. In general, we don't like reverse split because it is telegraphing weakness. However, it is a way to go above the old five buck rule. In the old days, institutions wouldn't look at stock below five dollars. I think things have changed but old habits die hard. Btw, another rumors to be doing reverse is ALU. 
Mitch Wagner 1/8/2015 | 11:10:43 AM
M&A We're going to see a few M&As -- and a couple of outright failures -- in SDN this year. The market is too crowded. Investors want their payoff. 
[email protected] 1/8/2015 | 10:29:19 AM
Looks like a sound move On the face of it, this looks like  a canny move by Sonus. The SDN functionality is already battle-hardened with users and it gives Sonus a neat story.

It's hard to tell what sort of reception this is having from investors, though -- with the M&A lumped in with the reverse split and Q4 prelims, there are a number of moving parts that could be influencing share price changes.

Sonus share price is down 3% to $3.80 but that does not necessarily reflect investor views on the Treq Labs SDN move. 

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