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Optical/IP

Cisco Eyeing Sonus

Several sources say that Cisco Systems Inc. (Nasdaq: CSCO) and Sonus Networks Inc. (Nasdaq: SONS) have been talking – and those discussions could lead to acquisition by Cisco.

So far the relationship has been described as exploratory, say sources close to investment banking interests. Light Reading could not confirm whether a deal had been made or what the price would be.

Sonus builds voice over IP (VOIP) gateways for carriers that allow them to carry voice traffic over packet-based network.

One venture capitalist familiar with the market, speaking under condition of anonymity, said a deal would likely get done at a slight premium and said he could see Sonus being sold for $5 or $6 per share. Sonus was trading at $3.20 during the late afternoon today.

Another source pointed to Paul Ferri, partner at Matrix Partners and Sonus board member, who is known for his impatience when companies hit rough patches, as Sonus has. This source tells Light Reading that Ferri may have an itchy trigger finger: "When Ferri decides to do something, he makes it happen." (See Top Ten Movers and Shakers, No. 5.)

Would a combination of Cisco and Sonus make sense? On many levels, it seems like a good fit. Here’s why:

  • Sonus is widely regarded as a leader in the voice softswitch market, and Cisco has struggled to build a leadership position in that market.
  • The capital-spending crunch in the telecom market has put the emerging VOIP market on ice, chilling Sonus’s prospects for near-term growth.
  • Sonus’s numbers have recently hit a rough patch. For the fourth quarter of 2001, the company reported revenues of $38.9 million and an adjusted net loss of $7.7 million. The company also warned that revenue was expected to decline again in the first quarter of 2002, but it has not provided specific guidance.
  • With losses, Sonus’s financial position has deteriorated, and they may be in need of a deep-pocketed partner to get them through the lean years. For example, as of the end of 2001, Sonus had $125 million in cash and short-term investments. One quarter earlier, the company held $137.4 million in cash and short-term investments.
Some analysts describe the combination as an evergreen rumor on Wall Street, but they say that's because the deal makes sense.

"It would be a great fit, because Sonus has strong technology and it's successfully deployed in large carrier networks," says Richard Church, a senior analyst with Wachovia Securities. "Cisco has talked about this as a tornado market, but so far they're only in the enterprise [market]."

Church said that with $125 million in cash, Sonus could stick it out as an independent company and have enough funds to last well over a year if it continues losing money at the current pace. However, he noted that it is more difficult to sell products to large carriers, especially RBOCs and ILECs, as a small independent company.

However, news of the talks was greeted with skepticism by some. "That rumor comes around every week," says Sam Wilson, an analyst with Merrill Lynch & Co. Inc. "But I doubt Cisco is very interested. Sonus is going after the Internet offload market, and that market has pretty much peaked already. It's also unclear if they'll offer class-4 or class-5 replacement." Wilson said Cisco is more likely to be interested in a smaller, private company.

Another factor: Cisco has said it still plans to do acquisitions this year, just on a smaller scale. But it has also said it’s looking for a company with shipping product. Sonus fits that description.

Sonus officials could not be reached at press time. A Cisco spokeswoman said the company had no comment.

— R. Scott Raynovich, US Editor, and Marguerite Reardon, Senior Editor Light Reading
http://www.lightreading.com
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flanker 12/4/2012 | 10:49:53 PM
re: Cisco Eyeing Sonus If Cisco bought Clarent and Sonus, that might be something of a home run in voice. But I dont think the powers that be could stand to see Clarent's VOIP gateway marketed side by side with Cisco's 5xxx and 7xxx routers.

Sonus doesn't have that image problem because its not a router configured to carry voice. It's a switch configured to trunk over IP.
adobe2 12/4/2012 | 10:49:55 PM
re: Cisco Eyeing Sonus It makes more sense for Cisco to do that, and follow up with few more aquisitions to cover all the VOIP services with:
-VOIP Gateway (Sonus has that to compliment Cisco)

-SoftSwitch (Sonus has that)
The more aquisitions would be:
-Application Server (there are bunch of vendors such as Dynamic Soft with good Sip stack.
-Media Server (vendors like Snowshore, Ipunity)
flanker 12/4/2012 | 10:49:56 PM
re: Cisco Eyeing Sonus Sonus is going after the Internet offload market, and that market has pretty much peaked already. It's also unclear if they'll offer class-4 or class-5 replacement." Wilson said Cisco is more likely to be interested in a smaller, private company.

Wilson should check his facts.

Sonus class 4 and class 5 functionality is contained in the softswitch components, which Sonus manufactures. Cisco doesnt have well-integrated softswitch intelligence for its routers, which would explain why Cisco is looking at Sonus. Cisco wiould also love to get its hands on Sonus' customer base.



watchtower 12/4/2012 | 10:49:59 PM
re: Cisco Eyeing Sonus Didn't Cisco cancel their equilivant of an Internet offload box?
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