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Optical/IP

Siemens, Alcatel Seeking Sycamore?

Sycamore Networks Inc. (Nasdaq: SCMR) is on the cusp of being sold to a large telecom equipment provider, several sources have informed Light Reading.

The likely contenders? Siemens AG (NYSE: SI; Frankfurt: SIE) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

Sycamore has been rumored to be talking to Siemens for some time, although nothing concrete has come of those talks. But one reliable source says the dealmakers have recently been working overtime, and that the ink could be dry on the term sheet as early as this week. He said a deal could be announced in conjunction with the Supercomm 2002 trade show in Atlanta.

As potential suitors, either Siemens or Alcatel would make sense, since each of those companies could use a large optical switching product or, more importantly, the accompanying provisioning software for which Sycamore is known. Sycamore’s ON16000, a 512-port OC48 switch with STS1 grooming capabilities, recently started shipping and may indeed be the product that Siemens or Alcatel could use to attack Ciena Corp. (Nasdaq: CIEN), the company that’s had the most recent success in the STS1 grooming optical switch market.

Siemens recently let it slip to Light Reading that it was negotiating a deal to resell another vendor's grooming switch (see Why Siemens Sold Unisphere).

For Sycamore, having a deep-pocketed partner that has good relationships with large carriers would be helpful. In many cases, optical switching startups have had difficulty selling their early products to large incumbent carriers and are now seeking partnerships with larger resellers that can help deliver their gear into the hands of the largest customers.

One big question about such a deal is the price. In the current environment, it’s unlikely that a large equipment provider would pay a big premium over Sycamore’s current stock price -- which currently puts it in the range of $1 billion. Sycamore’s sales slump has shown little signs of improving, and the company has recently focused on reducing its head count and preserving its cash (see What's to Save Sycamore?).

Despite all of the logic that might drive such a deal, though, there are also some reasons why Sycamore officials might have reason to drive a hard bargain. Sycamore has roughly $1 billion in cash and investments. And the company has recently reduced its burn rate to less than $30 million per quarter, showing it has the resources to improve its products and potentially outlive the telecom slump. Sycamore chairman and founder Desh Deshpande and CEO Dan Smith have been reluctant to sell, even in these bad times.

Such factors left some Wall Street sources skeptical of the talk.

“I wrote it off for two reasons -- I hadn’t heard anything, and the stock is rolling back down,” says one fund manager who asked not to be named. “It never mounted a head of steam. One thing they have is cash, so it doesn’t make any sense, in that they can at least roll out product and wait until the industry picks up. I can’t imagine they would sell without a premium.”

The markets, so far, seem to agree. Sycamore stock was trading down $0.14 (3.90%) at $3.45 at midday on Monday.

Alcatel and Sycamore declined to comment on this story. And Siemens was unavailable for comment at press time.

— R. Scott Raynovich, US Editor, Light Reading
http://www.lightreading.com
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opticaltalent 12/4/2012 | 10:18:47 PM
re: Siemens, Alcatel Seeking Sycamore?
Alcatel and Siemens do not have anything the carriers want to buy and Sycamore does not have the financial stability the carrier REQUIRE to purchase a core networking product.

Alcatel and Siemens need what every other major vendor does...revenue!!! And the ONLY way they are going to get that is to have a product the carriers want to buy.

Looks like a Win-Win! Open to hear ideas, opinions, disagreements, etc. etc.
wilecoyote 12/4/2012 | 10:18:46 PM
re: Siemens, Alcatel Seeking Sycamore? Does Sycamore have the product carriers want to buy? They are what...#4 in both of their markets?
TrafficGuru 12/4/2012 | 10:18:43 PM
re: Siemens, Alcatel Seeking Sycamore? Just like this one - a bad joke at best.
[email protected] 12/4/2012 | 10:18:41 PM
re: Siemens, Alcatel Seeking Sycamore? Having seen Alcatel buy and destroy Newbridge, Packet Engines, Assured Access, Internet Devices, you name it, Sycamore should think long and hard about exactly how it wants to meet its demise.
puddnhead_wilson 12/4/2012 | 10:18:38 PM
re: Siemens, Alcatel Seeking Sycamore? I'm not going to comment on takeover rumour, because I have no idea. But the reseller negotiations continue to intrigue me.

I think we can say it isn't one of the big TEs, NT or LU, becasue that's who Siemens wants to compete with. Is it Sycamore, CIENA, or ??? Wouldn't it have to be CIENA? Why bother taking a switch that isn't selling anyway from Sycamore and trying to establish it for them? Why not take a product for which there seems to be some demand, CoreDirector? From Siemens POV CIENA makes the most sense. My only question is, would CIENA go for it? That probably comes down to terms of the agreement, I'd guess, CIENA would go for this too if the terms were right, but might hold out if not.
Opty-Op 12/4/2012 | 10:18:37 PM
re: Siemens, Alcatel Seeking Sycamore? In order for Sycamore to make it on their own they have to win at least one Tier 1 Carrier. Tier 1 carriers have learned not to be the first to deploy core equipment from a manufacturer.

They run into numerous problems such as:
- Support - can one customer's purchases fund a real 24/7 tech support team?
- Track record - Is the carrier going to find and deal with all the "bugs" associated with a new product?
- Funding - Is the vendor going to be around in a year? If not the carrier has all this equipment in their core network that cannot be expanded or supported.

Sycamore needs someone like Alcatel or Siemens with an imbedded base to open the doors to the carriers. While Sycamore's technology is not "bleeding edge" it does have capabilities. If either company can buy Sycamore and integrate their products with existing deployed products they might have a chance for success. Sycamore tried to get CISCO to make an offer for the company. But, their business practices during the market boom came back to haunt them - CISCO said - fool me once - shame on you - fool me twice - not going to happen.

The key is neither company - Alcatel or Siemens - has the track record of being about to purchase a company, integrate it and grow the product line.

Sycamore is running out of money and Alcatel and Siemens must have next generation products to compete in the future market of telecom. I think this is more of a shotgun wedding then a win/win situation.


Opticaltalent wrote:

Alcatel and Siemens do not have anything the carriers want to buy and Sycamore does not have the financial stability the carrier REQUIRE to purchase a core networking product.

Alcatel and Siemens need what every other major vendor does...revenue!!! And the ONLY way they are going to get that is to have a product the carriers want to buy.

Looks like a Win-Win! Open to hear ideas, opinions, disagreements, etc. etc.
scooby 12/4/2012 | 10:18:37 PM
re: Siemens, Alcatel Seeking Sycamore? No one has anything the carriers *have* to buy right now. And so, while they attempt to refinance their monumental debt, the vendors must either conserve capital or expand into non-traditional markets. Either way, spending a billion dollars on last year's transport technology doesn't sound like a pathway to success.
wilecoyote 12/4/2012 | 10:18:35 PM
re: Siemens, Alcatel Seeking Sycamore? Bobby, I think you should check your facts re: Cascade. Lucent was not bankrupted by this deal as it was an equity deal not cash, and the Cascade line is one of the company's rare bright spots, still profitable, especially in light of renewed interest in frame relay, VPN services and ATM switching from both carriers and enterprise customers.

You are wrong here, sir.

Now, Sycamore is on an island. They have only a couple of options: sell or buy someone with a really hot product like Laurel. They could use some of that big war chest they have but Dan Smith looks like a deer in headlights right now so I don't see him making any bold moves at the moment.
GlassyEyed 12/4/2012 | 10:18:35 PM
re: Siemens, Alcatel Seeking Sycamore? ... This deal bankrupted Lucent as it was not able to make money selling the Cascade gear.

Absolutely not true. The Lucent legacy sales teams were discounting 5E's by 85% to keep existing customers while the Ascend sales teams were doing all they could NOT to. There were great margins in the Cascade products. But the Lucent brass won the battle and drove both the margins and the product teams into the ground because they didn't know how to sell.

Fact is, Lucent bought the right company. They just could not let their ego's stand to let the company they aquired do what they bought them to do; Sell, Sell, Sell. Lucent management had to "own" the customer and the deal. They eliminated the talent and the technologies which could have made a difference.
BobbyMax 12/4/2012 | 10:18:35 PM
re: Siemens, Alcatel Seeking Sycamore? Some Sycamore management people from Cascade Communication which was acquired by Ascend Communication. Subsequently Ascend was acquired by Lucent for $24 Billion. This deal bankrupted Lucent as it was not able to make money selling the Cascade gear. With this kind of history of Sycamore, the potential buyers should pay attention to details and make an assesment on the Sycamore products.
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