BATM Snaps Up Metrobility
BATM, better known as Telco Systems (BATM) , already has metro Ethernet and Ethernet aggregation products in its portfolio. Buying Metrobility adds Ethernet access capabilities to its arsenal. (See Telco Systems Intros T-Metro 200, Metrobility Shows Off, and Metrobility Crosses Ntwks.)
And it seems to be getting a lot for its money. Metrobility, which claims to have more than 50 customers, generated revenues of $11.8 million for a pre-tax loss of $1.2 million in 2005. BATM reckons that, once integrated, Metrobility will make a "positive contribution" to its business, which made a small operating profit of $1.4 million from revenues of $56.5 million in 2005. (See BATM Reports 2005.)
Cutting costs looks like the key to making the Metrobility business profitable. Metrobility currently has just under 50 staff, but BATM CEO Zvi Marom says not all of them will be retained. "We will do some adjustments of manpower," he notes.
Marom says Metrobility is a good fit for his company. "The customers are different, the products are complementary, and they have good people," he states, adding that the acquisition will give BATM the skills to develop Ethernet-based customer premises equipment. "It will give us a chance to take our products into new customers."
According to a Light Reading Insider report on Ethernet in the First Mile published late last year, about 55 percent of Metrobility's revenues come from carriers, including Time Warner Cable Inc. (NYSE: TWC), some Latin American operations of Telefónica SA (NYSE: TEF), and IP Networks Inc. The rest of the revenues come from enterprise users. (See Insider Examines EFM.)
The report's author, Light Reading Insider analyst James Crawshaw, reckons the acquisition will strengthen BATM's sales channels in the U.S. and add WDM capability to BATM's portfolio. Metrobility's product set includes CWDM capabilities.
The acquisition at least keeps Metrobility's products, and some of its team, in the market. Stan Hubbard, senior analyst at Heavy Reading, says the Ethernet access firm "has been under competitive pressure in battling against bigger vendors, and it’s good to see it has found a home with Telco Systems."
Hubbard adds: "The experiences of Metrobility and Luminous, which folded in late 2005, really point to the fact that you can be a player in a promising, expanding market like Ethernet access and still find yourself in a bind if the stars don’t line up right. Both companies had sales channel relationships, but they apparently were just not strong enough to generate the type of volume sales to keep things humming." (See Luminous Loses Its Luster and Luminous Still Twinkles.)
That's not the case for all the vendors in this space, though, as other Ethernet access vendors are finding new backing and momentum. (See Hatteras Closes $21M Round, Copper Ethernet Makes Strides , Overture Funds Reach 7.5M, and ADVA Snaps Up Covaro.)
Hubbard says the sector's economics are tough. "In this environment, the game is all about establishing footprint as rapidly as possible and providing platform upgradeability. Vendors that fail to build strong sales channels run the risk of getting absolutely crushed in the market, because they will not be able to generate adequate volumes to bring production costs down and remain price-competitive enough to generate income to fund future feature development."
Metrobility CEO Alex Saunders declined to comment on the acquisition, though he did confirm the company's customer and staff numbers, and that Metrobility had raised just over $5 million in funding. (See Metrobility Lands $3.5M.)
BATM's share price hardly moved on the news, edging up just 1 percent to 25.25 pence (US$0.47) today on the London Stock Exchange .
— Ray Le Maistre, International News Editor, Light Reading