Its secondary offering doesn't please shareholders, but CEO says it's a cushion the company needs to do bigger deals

April 22, 2003

3 Min Read
Sonus Snags $61M, Stock Tanks

Shares in voice over IP (VOIP) equipment maker Sonus Networks Inc. (Nasdaq: SONS) plummeted 13.5 percent Tuesday after it announced a secondary public offering below yesterday's trading price (see Sonus Sells 20M Shares).

Sonus sold 20 million shares at $3.05 a share, raising $61 million, which will amount to about $57 million after underwriter Goldman Sachs & Co. takes its cut.

The Westford, Mass., company’s stock fell as low as $3.13 and was off 43 cents, or nearly 12 percent, at $3.19 in morning trading on the Nasdaq. It’s a far cry from Sonus's whopping IPO in 2000, in which it raised $112 million (see Sonus Raises $115 Million in IPO). At that time, on the first day of trading, Sonus’s market cap was $1.2 billion. At its peak, shares in the company traded as high as $99. It now carries a market cap of $660 million.

Wall Street analysts watching today’s deal say it was an opportunistic move in what has been an improving market for technology stocks. Although it looks as if Sonus raised a relatively small sum compared with its IPO, any amount of cash makes a difference these days, they say.

Raising cash in the current telecom market is key, especially for relatively young companies that need to show their customers they are stable, long-term players. Sonus had $106 million in cash and marketable securites at the end of the March quarter, and this offering would likely boost the cash coffer to over $160 million, depending on how the company is doing in its current quarter.

”It makes sense as they start to deal with large service providers and need a balance sheet that shows they are going to be around... If you can get the cash balance to exceed $100 million it’s definitely worthwhile,” says Michael Latimore, analyst at Raymond James.

”This financial transaction bolsters our balance sheet… We don’t need the money to run our business operations,” says Hassan Ahmed, president and CEO of Sonus. He says the funds will sit there to take any “liquidity fears off the table” and encourage the major carriers to do business with the startup.

Sonus’s list of customers includes:

Unfortunately, a number of these are either emerging from Chapter 11 or still in it (see Global Crossing Vets VOIP, The Post-Chapter 11 Hangover , Qwest CEO: No Bankruptcy in Sight, Interoute Goes Into Receivership, Interoute's Back From the Dead).

Sonus may tap into this reserve to broaden its portfolio in the wireless market. It currently offers wireless gateways and softswitches for the core of service provider networks, designed to bridge the gap between the wireless side of cell calls and the switched network. It plans to build edge products that will enable operators to deliver services to wireless subscribers next year. “The secret to success is developing products ahead of time,” says Ahmed.

Still, it would be nice if Sonus were able to sell more of its “legacy” VOIP products before it jumps into yet another fledging market. Ahmed believes that a combination of regulatory relief for the Bells and a modest increase in capital spending will drive sales of its VOIP products this year. “They need our technology to provision new services… More of the same doesn’t get you anywhere,” he says (see RBOCs Get Long Distance Go-Ahead).

For a detailed report on the VOIP market see the December issue of Light Reading Insider: Deconstructing VOIP.

— Jo Maitland, Senior Editor, Boardwatch

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