Sonus Swing: Goldman's Golden Touch?

Sonus Networks Inc. (Nasdaq: SONS) has enjoyed a nice two-day rally.

The rally comes on the heels of a new reseller agreement with Samsung Electronics Co. Ltd. (Korea: SEC) announced Tuesday (see Samsung Sings Sonus Song). Under the agreement, Samsung will resell Sonus's GSX9000 softswitch product to wireless service providers globally.

There's only one thing puzzling about the timing: It started 24 hours after the Samsung news was released. On Tuesday, the day the Samsung news came out before the markets opened, Sonus stock was in a slumber.

On Wednesday, Sonus shot up 8 percent on more than quadruple its average trading volume. The stock rally continue today, rising $0.22 (3.7%) to $6.19.

So why the slow take? Some observers say the move may have been catalyzed not by the Samsung news, but by a research note from Goldman Sachs & Co. analyst Brantley Thompson.

Thompson wrote in the briefing issued on Wednesday that his firm sees a possible 35 percent upside for Sonus in the coming year, and upgraded the U.S. telecom equipment space from Neutral to Attractive.

At the root of Thompson's optimism is the fierce competition among equipment buyers to offer VOIP. “Market demand will improve as cable vendors expand the VOIP services push, adding pressure for incumbents to step up the pace on VOIP deployments and capabilities," Thompson says in the brief.

The Sonus stock price seemed to react to the Goldman Sachs brief, rather than the Samsung partnership announcement the day before. Motorola Inc. (NYSE: MOT), another reseller of Sonus gear, was also praised in the brief, and its stock responded with an uptick of 58 cents to $17.05 in midday trading Thursday.

“I don't think the Samsung agreement by itself means much, but when put in the context of their strategy it means something," says analyst Eric Buck of Janco Partners Inc.. “When you consider their other partnerships with Motorola and Marconi, it seems like they are following through on their strategy to build reseller and OEM partnerships."

This notion, and the idea that more such partnerships are on the way, are probably what prompted the warm words from Thompson. “Additional partnerships with major equipment vendors who lack key parts of the VOIP product line will help fuel upside," the brief reads. “SONS position is becoming more entrenched with... a growing list of re-seller partners including Motorola, Samsung, and Marconi."

Buck believes that partnerships like Samsung usually don't even get announced unless it has already yielded a new, substantial customer. Such a customer has yet to be announced, but Buck isn't the only one who believes that its in the works.

“Expect continued new customer momentum," Thompson says in the Goldman Sachs brief. “We believe there are unannounced major carrier contracts in the U.S., India, and Europe."

— Mark Sullivan, Reporter, Light Reading

allidia 12/5/2012 | 3:29:42 AM
re: Sonus Swing: Goldman's Golden Touch? Let's see... Noel and company downgrade SONS even though they are the indisputable leader in VOIP and a pureplay according to a Needham analyst during Bert Notini's presentation the other day. VOIP and FTTH are the two growth areas in Telecom Equipment spending. Forbes article says SONS gear is in Cingulars Core network via the MOT partnership. Another analyst says their industry contacts indicate SONS has won business at Vonage (an ISP takeover target) w/ 400k subscribers. Lightreading is inclined to believe that BT is behind the SONS/Marconi partnership. SBC (SONS in trials) and Reliance Telecom (India)are speculated as the US and India major wins mentioned but to date there is nothing substantial to verify. And how about the competition....

NT is having issues at VZ according to a question posed to SONS CEO at Tuesday's Smith Barney conference. No comment from CEO.

LU is having issues with Telica integration according to another analyst commenting on why LU had to OEM Audiocodes equipment at HOT.

SONS added Marconi/MOT/China Putien and Samsung all this year as partners. As well as ADC as an EFI partner.

THNK firm came out with $9 target for SONS a week ago.
GSCO two days ago says SONS has a 15-35% upside from $5.50 and if they land a tier 1 then a meaningful gain is likely. Meaningful like TASR or SIRI who knows...

SONS gear carries 10b minutes traffic in month of December.

Now what did Noel say??? Margin pressures and AWE spending?
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