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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 | 10:49:45 PM
re: Cisco Eyeing Sonus In the next gen local side I really like Telica and Santera. Both are serving CLEC Line side applications both in the US and Internationally and have intergrated with NGDLC's using GR303/TR08. Not just in a lab, but in live networks.

BBQ, you have raised some interesting points that I hesitate to challenge, but at the risk of sounding foolish, is Telica actually outselling Sonus in terms of quarterly revenues?

You mention that the line side is where the growth is, but what about the conversion by a lot of carriers (ATT, Cable & Wireless) to global voice over packet? I'm not sure the LEC market is any stronger than the LD side. Minutes growth on the LD side is pretty strong, and that were you see Sonus (and carriers like IBASIS) doing their business.









easycookie 12/4/2012 | 10:49:45 PM
re: Cisco Eyeing Sonus ...And whether you like ir or not Sonus doesn't have a presence in the line side of the market. The ILECs own that market with over 90% share and if Cisco wants a piece they have to crack the line side access code.


-----------------------

You seem quiet clueless - according to your criterion the only guys with "line-side" presence are LU/Nortel/ALA/Siemens - they are the only ones with Class 5 5ESS/DMS/EWSD etc.

As far as next-gen class 5 goes SOnus has as good a story as anyone else - really how many of the guys mentioned above are going to cannibalize their own markets of traditional class 5?
optical_man 12/4/2012 | 10:49:44 PM
re: Cisco Eyeing Sonus Author: Nuthinbutnet Number: 13
Subject: BarBQ Date: 3/7/2002 9:31:25 PM
I'm convinced you know this space. Please comment on the following:
Was speaking to a CLEC exec yesterday (yes there might still be a few surviving and thriving) saying they are getting .995 with their Cisco VOIP infrastructure. Apparently they are a big Cisco reference. This may be trunk side only, i'm not sure. They are selling T1s to small biz. Probably reselling BellSouth access.

nut,
quick answer to your cisco question. cisco has plenty of enterprise voip apps, so don't let their marketing numbers fool you. next, they DO have some CARRIER class(sortof?) equipment that could be used in a small clec environ. It's called the AS5300. At last count it handled 8 T1's (but the number may be up since I last checked) per box.
The companies attacking Nortel/Lucent/Siemens market are building boxes that handle 500 - 2000 T1's per box. There's the difference, the RBOC's have CO's that pump that traffic and many times, that times 8, so they need some heavy duty gear. To put cisco in the co would be to buy dozens and dozens of as5300's instead of 3 or 4 gateways from telica, sonus, santera, etc.
So, if cisco wants to reference northern conneticut phone company, let them. The real money is being able to reference someone like Nynex.
optical_man 12/4/2012 | 10:49:44 PM
re: Cisco Eyeing Sonus bbq,
how do you know this? answer vaguely if you'd like.

I agree with you on lions share being line side, and that they are making 'tactical plays'. Of course ALL the next generation vendors have to make these tactical plays.
Telica is on the scene and raring to go. Santera is in business, but I'm not sure they're going to get very far. They are a little bit screwed up right now, but who knows, if they get the smallest of SBC press releases approved by SBC then they're off to the races as well!
Nuthinbutnet 12/4/2012 | 10:49:44 PM
re: Cisco Eyeing Sonus I'm convinced you know this space. Please comment on the following:

Was speaking to a CLEC exec yesterday (yes there might still be a few surviving and thriving) saying they are getting .995 with their Cisco VOIP infrastructure. Apparently they are a big Cisco reference. This may be trunk side only, i'm not sure. They are selling T1s to small biz. Probably reselling BellSouth access.

Also, what do you think about a small, relatively unknown soft switch co. in atlanta called Verso, VRSO on Nasdaq? I have some of their stock.

Also, what is the meaning of Don Hallacy, ex-Sprint and ex-CEO of Verso, the softswitch company, just joining BellSouth as an officer level exec in IT??? Can IT run the public network if it's packet rather than circuit?

Comments?
optical_man 12/4/2012 | 10:49:43 PM
re: Cisco Eyeing Sonus "I dont think Sonus and Santera/Telica are in the same space. The Sonus product scales massively. They used to hype the lowest cost per port in the industry. I dont know if that's still the key marketing point. "

Sonus has claimed it scales massively. No one really knows for sure yet as it's all Internet Call Diversion (ICD) apps that have been deployed. No large customer has bitten on the other flavors (that I know of). Currently each gateway does around 14000 dso's. They say you just keep adding gateways to get to the number you want.
Telica handles 80,000 dso's per gateway. Right there, you see there is no need to 'scale massively' past that. Except for metro Chicago, LA, NY, etc, but by the time a large RBOC is ready to implement pure voip into these markets, even Lucent will have a voip gateway that can handle that. :) We are talking 2-3 years from now for core metropolotan replacement of 5ESS and DMS250's.
Santera, your guess is as good as mine, but I bet they claim they can 'scale massively' as well.
flanker 12/4/2012 | 10:49:43 PM
re: Cisco Eyeing Sonus I dont think Sonus and Santera/Telica are in the same space. The Sonus product scales massively. They used to hype the lowest cost per port in the industry. I dont know if that's still the key marketing point.

I agree with BBQ that for line aggregation at the local CO, the SONUS product is not the ideal solution.
BarBQueKid 12/4/2012 | 10:49:42 PM
re: Cisco Eyeing Sonus It's my job, we are in the same accounts, talking to the same teams with products that are complimentary. The question is always, who do you like and why? It is amazing what you get told if your not a direct competitor.
BarBQueKid 12/4/2012 | 10:49:42 PM
re: Cisco Eyeing Sonus On Cisco and the CLEC mentioned, not sure would have to understand the application. I do not that a few smaller CLECs are using Call Manager and AVVID but that solution won't pass the regulatory requirements for interconnection and E.911.

Cisco does have a relationship with Broadsoft and Sylantro and I think Sylantro does the 911 stuff. Once again, you'd have to understand the application. Otherwise it is all speculation.

BarBQueKid 12/4/2012 | 10:49:41 PM
re: Cisco Eyeing Sonus great discussion.

Flanker/optical_man, where do you think the big deals are this year and what's driving them.
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