x
Optical/IP

ADC Tries Flogging its OSS

Struggling vendor ADC Telecommunications Inc. (Nasdaq: ADCT) has been parading its software business in front of potential buyers as it looks to focus on broadband infrastructure.

ADC is keen to offload its non-core lines, including its Singl.eView billing business and Metrica service assurance solution. Both software lines boast impressive customer bases and brand awareness, but revenues are on the wane, and management of the OSS unit at ADC has changed hands three times in the past year (see ADC Loses Another OSS Boss and Report: OSS Brands Lack Impact).

In a research note issued late last week, Morgan Keegan & Company Inc. analyst Simon Leopold noted that a greater focus on its hardware business would likely drive future earnings, and he highlighted ADC's intention to sell off its software lines.

Sure enough, it seems ADC has been contacting companies known to have M&A funds. One of these is OSS vendor Concord Communications Inc. (Nasdaq: CCRD), which raised cash last year specifically for acquisitions (see Concord Locks $86M War Chest). Concord's CTO, Fred Engel, says ADC has been approaching service assurance software firms to sound out any potential interest in the Metrica business.

How much ADC is hoping to raise from a sale is unknown, but the value will hardly be bolstered by current revenue trends. In the company's most recent quarter, ADC's software products accounted for $17.9 million in revenues from a total $168.5 million (see ADC Reports Q1 Results ). That $17.9 million represented a "year-over-year 17 percent decrease in software sales, primarily because customers continued to extend sales cycles," the company noted at the time in its filing with the Securities and Exchange Commission (SEC).

It also noted that it planned to acquire products and businesses "that are complimentary to our communications infrastructure business," using the $400 million raised last summer (see The Convertible Makes a Comeback). ADC subsequently acquired Krone Inc. in March (see ADC Jumps on Krone). A spokesman for the firm says, "When we acquired Krone, we indicated that we were going to focus on the network infrastructure product and services foundation layer... That's the strategy."

He adds that ADC has noted "analyst speculation that our software business might be divested," but that "the only thing we have indicated is that software is not an area of emphasis for us anymore." ADC was not prepared to comment on whether a sale of any business unit had been proposed to, or agreed upon with, any third parties.

So where might ADC find a buyer? Maybe it should have fluttered its eyes at visitors to the Billing Systems 2004 show in London this week. Unsubstantiated rumor on the show floor was that a number of software firms are looking to buy retail billing technology to expand their horizons, and even that ADC had snared a buyer for its billing business in return for $100 million.

Potential buyers for the billing business would be companies with existing back-office business support systems, reckons OSS Observer analyst Mark Basham. He says it's unlikely that another of the major telecom billing vendors, for example Amdocs Ltd. (NYSE: DOX) or CSG Systems International Inc. (Nasdaq: CSGS), would make a move, as they're more focused on extending their capabilities beyond their existing billing businesses.

Even a management buyout or an acquisition by an investment firm are possibilities, as ADC's billing unit is a well-established standalone business unit with some attractive technology. "It'll make a nice buy for someone," says Basham.

And he's sure the two software lines will be sold separately, as they're not really linked in any way, have separate staff, and the products are deployed by different units within carriers. The Metrica product line, used for network performance analysis by the majority of the world's GSM mobile operators, particularly those in Europe, should be an easier sell, as there are more potential buyers, Basham says.

The OSS Observer man notes it would make a great buy for existing service assurance powerhouse Micromuse Inc. (Nasdaq: MUSE), or even Telcordia Technologies Inc., which has made noises recently about spending some cash (see Telcordia's on the Prowl). "It would be a great buy for Telcordia, as it's desperate to build a bigger presence in Europe and in wireless."

Telcordia, though, has hardly been throwing its weight or its wallet around of late, having limited its M&A activity to a single, tiny tech purchase (see Telcordia Dabbles With Dax).

Micromuse declined to comment on any M&A issues, while Telcordia couldn't be reached (and has a track record of not commenting on potential acquisition targets).

— Ray Le Maistre, International Editor, Boardwatch

Be the first to post a comment regarding this story.
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE