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Is Lucent Sounding Out Sonus?

Light Reading
News Analysis
Light Reading
1/23/2004

When Sonus Networks Inc. (Nasdaq: SONS) postponed its eagerly awaited fourth-quarter and year-end earnings call this week, it set off a flurry of theories and rumors about what's going on (see Sonus Delays Q4 Results).

On Wednesday, about 15 minutes after the company's conference call was supposed to begin, Sonus cancelled the meeting, citing the need to complete a 2003 audit before revealing its numbers. That's had tongues wagging. Some say a partnership between Sonus and Lucent Technologies Inc. (NYSE: LU) is brewing and may have caused the delay of the conference call.

Adding some fuel to the rumor, Lucent CEO Pat Russo hinted during that company's earnings call this week that it has some exciting VOIP news in the works, but nothing it can talk about yet (see Russo's VOIP Spin Confounds).

Sonus officials declined to comment, noting that the company is in a quiet period and therefore cannot talk before its earnings.

Most analysts think that at its current price, Sonus is too expensive an acquisition. Sonus’s market capitalization right now is $2.12 billion and it's trading at 26.5 times trailing twelve month sales. For a company like Lucent that is trying to battle back to profitability, that's likely just too much.

”It’s doubtful Lucent would acquire them, as it's way over-priced, but a partnership would make a lot of sense from the product perspective," says a source familiar with both companies, who asked not to be identified. "It would get Lucent back into Verizon.”

Earlier this month, Verizon announced a major contract with Nortel Networks Corp. (NYSE/Toronto: NT), to replace its legacy Class 5 switches with next-generation softswitches (see Nortel Soars on Verizon VOIP Deal).

Lucent isn't out of the Verizon running altogether, though. Amongst the Nortel gear being replaced there is also a considerable chunk of old Lucent switches. Verizon went with Nortel because it wasn't convinced by Lucent’s next-generation products, but it's given Lucent 18 months, maximum, to come up with a better migration strategy or face being supplanted by another vendor (see Lucent Performs Softswitch U-Turn).

Besides Nortel then, analysts say the only other vendor with any clout in next-generation softswitching is Sonus. Verizon has already deployed Sonus’s GSX9000 gateway, its Insignus softswitch, and its Insight management system in its long-distance network (see Sonus Details Verizon Deal, Q2 Results ).

Sonus hasn’t discussed its business relationship with Verizon since the Nortel deal, but it would seem that the company has a clear opportunity to become the second vendor of choice in Verizon’s network.

On the notion of Lucent actually acquiring Sonus, Jon Arnold, VOIP analyst at Frost & Sullivan notes, “Both have mixed reputations, I’m not sure if putting them together would offset that or make them a stronger competitor to Nortel.”

Most people think a partnership between the two companies would make sense, particularly as they have already done some of the groundwork to integrate their technology. Back in June 1999 Sonus and Lucent joined forces to build an IP network for Frontier Communications, and Lucent just announced a VOIP deal with Qwest Communications International Inc. (NYSE: Q), which also uses Sonus gear (see Qwest Buys Lucent VOIP Kit, Lucent's VOIP Group Gets a Boost).

Sonus has a shopping list of customers, including Global Crossing Holdings Ltd., PointOne, Time Warner Cable, Z-Tel Technologies Inc. (Nasdaq: ZTEL), Interoute Telecommunications, NTT Communications Corp., UNI Telecom, Fusion Communications Corp., UNEFon (Mexico), and NuVox Communications, among others, but it has yet to land a real whopper of a deal with a major carrier, analysts say.

Regarding Sonus’s cancelled earnings announcement, people familiar with the company say there’s nothing sinister about it. “It’s more like orders not finished,” says one source.

Wall Street firms had estimated that Sonus would report quarterly revenues of $32 million, but recent reports from other telecom equipment makers has observers speculating that Sonus might blow past its numbers (see China, Wireless Save Lucent , Lucent Profits in Q1, Juniper Confidently Carries Q4, and What's Next? Cisco, of Course).

— Jo Maitland, Senior Editor, Light Reading

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lightbulb0
lightbulb0
12/5/2012 | 2:37:11 AM
re: Is Lucent Sounding Out Sonus?
Get LU back to the driver seat and LU's bonding with RBOC is far tight than anyone else.
reoptic
reoptic
12/5/2012 | 2:37:11 AM
re: Is Lucent Sounding Out Sonus?
Cisco needs Sonus even more than Lucent so don't count them out off the game. Either way Nortel seems to have locked things up at Verizon for 18 months.
Belzebutt
Belzebutt
12/5/2012 | 2:37:11 AM
re: Is Lucent Sounding Out Sonus?
First they give away their data customers to Juniper.
Then they give away their (potential) softswitch customers to Sonus.

When they're done giving away their customers, what will they do? Oh yes, "services"... right.
digerato
digerato
12/5/2012 | 2:37:08 AM
re: Is Lucent Sounding Out Sonus?
A proposed acquisition is not a valid reason to cancel an earnings call. It doesn't affect the historical numbers to be reported on the call. The only valid reason to cancel an earnings call if if you don't have the numbers, or have them and don't think they're correct.

Neither of these bode well for Sonus, especially in these days of Sarbanes Oxley and Elliot Spitzer, and when your stock is trading at a massive multiple to trailing earnings.

Digerato
Route_495
Route_495
12/5/2012 | 2:37:05 AM
re: Is Lucent Sounding Out Sonus?

Sonus deserves to be bought by Lucent.
Snape
Snape
12/5/2012 | 2:37:04 AM
re: Is Lucent Sounding Out Sonus?
"Sonus deserves to be bought by Lucent."

That's right, if you can't make it quick make it painful

Severus
optical_man
optical_man
12/5/2012 | 2:37:01 AM
re: Is Lucent Sounding Out Sonus?
Author: truelight Number: 7
Subject: Re: Just desserts. Date: 1/23/2004 10:16:41 PM
It will be bad for everyone if Lucent buys SONUS.
Lucent needs to fix itself internally with managenemt and its own R&D.

BIG PICTURE:
LU is done. They are just burning through the remaining cash/credit/credibility/contacts they have. LU was always made up of ATT pensioners.
Sonus will make a bunch of money off this deal while the LU sales teams sell their equipment into customer sites. This will happen for about 2 years, then BOOM, LU implodes.
just my 7 cents.

truelight
truelight
12/5/2012 | 2:37:01 AM
re: Is Lucent Sounding Out Sonus?
It will be bad for everyone if Lucent buys SONUS.

Lucent needs to fix itself internally with managenemt and its own R&D.

SONUS needs to carry on and justify itself some more perhaps growing into a much larger company.

flam
flam
12/5/2012 | 2:37:00 AM
re: Is Lucent Sounding Out Sonus?
"Sonus deserves to be bought by Lucent."

That's right, if you can't make it quick make it painful

Severus


I don't think Sonus are stupid enough to get bought out by Lucent. Some of the founders are from Ascend and I don't believe they'd want to see their next set of products to get hosed that way again.

Lucent is desperate for a VOIP solution. They better be. Given their track record on developing new systems, *especially* packet based, the 18 month lifeline from VZ is laughable.
BobbyMax
BobbyMax
12/5/2012 | 2:36:56 AM
re: Is Lucent Sounding Out Sonus?
Sonus generates a very little revenue. It is not certain that Sonus can generate its current level of revenue. It is also not clear how reliable the Sonus Softswitches are. It is also not clear how Sonus Softswitches would scale? How many lines can it support? Is it deployable in the city of New York?

Lucent has its own Softswitches thhat have been deployed.With Lucent's expertise, if it exists. it can add additional features to it. I also think that Lucent can provider a better migration strategy from #5ESS to Softswitches.

It is not the time to get into debt or blow whatever cache reserves. It should also focus on its marketing and sales activities. It should also focus on broadband business. It should also make the best the edge and core routers using its huge idle workforce that has not produce any think in the last 2.5 years.
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