Sonus Savors VOIP Uptick

Softswitch vendor Sonus Networks Inc. (Nasdaq: SONS) reported rising revenues last night, in what management says is a testament to momentum in the voice-over-IP (VOIP) market (see Sonus Q3 Revs Skyrocket).

Sonus reported that quarterly revenues grew from $21.4 million in the second quarter to $28.6 million in the third quarter -- an increase of 34 percent sequentially and 285 percent year-over-year. Net income was $0.01 per diluted share ($1.2 million), compared to last quarter's net loss of $0.01 per diluted share. Sonus's gross margin is now 61.4 percent, up from 58.8 percent last quarter.

The news helped fuel a rally in the stock: Sonus shares were trading up 0.76 (9.16%) at $9.06.

"Over the long run, we believe the ability to get onto a totally new service innovation and delivery platform will be why every carrier in the world will eventually deploy packet voice," said Sonus CEO Hassan Ahmed in a conference call with analysts.

Carriers worldwide realize VOIP can do much more for them than guarantee savings in new voice rollouts, Ahmed said, pointing analysts to "an increasingly diversified" customer base, both in the U.S. and worldwide. Interest is also growing in wireless VOIP and other new products, he maintained.

CFO Stephen Nill said revenues should grow 10 percent to 15 percent next quarter, though the firm isn't officially crystal-gazing beyond that. Per-share profitability will be "about the same," he said.

A key area of interest is Sonus's customer base, which includes an impressive array of domestic incumbents and international carriers. This quarter, the firm added AT&T Corp. (NYSE: T) to its roster of customers that contributed over 10 percent of revenues. Other ten-percenters were Global Crossing Holdings Ltd., Qwest Communications International Inc. (NYSE: Q), and Verizon Communications Inc. (NYSE: VZ).

Together, the four accounted for 65 percent of quarterly sales, Nill said. In total, Sonus had 17 customers in the quarter.

Execs said Sonus continues to see a great VOIP opportunity stateside, as U.S. incumbents seek the best way to expand voice services based on IP buildouts nationally and locally.

The international arena, though, is where Sonus sees the majority of its future opportunity. "More than half of the world's telecom footprint is outside the U.S.," Nill asserted, illustrating why Sonus's international revenue grew from 21 percent to 26 percent of the total this quarter, and why the company sees that figure getting bigger over time.

Sonus has opened an office in Mumbai, India, to address what Ahmed says will be an enormous expansion of phone connections in that country, hitting a total of 175 million telephone connections by 2010. Other Asia/Pacific countries -- including China, where Sonus counts China Netcom Corp. Ltd. as a customer -- are prime candidates to buy new VOIP wireless and access gear from Sonus to help greenfield builds.

One interesting ripple: In a recent press release, Sonus appeared to toss out the possibility it would announce another new customer at the Telecom World 2003 conference of the International Telecommunication Union (ITU) in Geneva, which starts October 12 (see Sonus to Name Customer in Geneva). Subsequently, though, the company told us the release had been issued in error by a PR firm in the U.K. No word on new customers was evident in a subsequent release about the event (see Sonus Plans ITU Telecom Display).

Analysts seem impressed with Sonus's results, but concerned about investors making too much of it. In a note to clients today, for instance, Steve Levy of Lehman Brothers says the firm is "very impressed" with Sonus report, but Sonus's stock still has a "rich valuation," he writes, and he expresses concern that its pricing "does not allow for any mistakes in management execution" or delays in the recording of revenues.

Elsewhere, a flat deferred revenue figure in this quarter's report drew concern. Rich Church of Wachovia Securities Inc. wrote in a note today that the firm will maintain its rating on Sonus, due to its "valuation and expectation that deferred revenues will be declining over the next couple of quarters."

Sonus also faces growing competition as it seeks to maintain its impressive position, particularly from Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT), both of which also consider the VOIP market hot. Nortel has won contracts with MCI (Nasdaq: WCOEQ, MCWEQ) and Sprint Corp. (NYSE: FON) (see MCI Vouches for Nortel's VOIP and Cisco Releases SMB VOIP Gear).

— Mary Jander, Senior Editor, Light Reading

materialgirl 12/4/2012 | 11:20:56 PM
re: Sonus Savors VOIP Uptick Of course NT would see the VoIP market as "hot", but arent the packets in their voice packet offerings the ATM variety? Where is LU in all of this? Is CSCO stuck inside corporations for their VoIP offerings?
mcasaes 12/4/2012 | 11:20:54 PM
re: Sonus Savors VOIP Uptick I would guess customers multiservice networks have created first the demand for ATM as the transport, so, the first generations of VSP where deployed as "atm centric".
The current VSP generation even offer Gigabit ethernet ports on the FP itself.
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