Sorrento's $40 Million Deal
Sorrento Networks, the Osicom Technologies subsidiary that will soon merge with its parent, said Wednesday it has sealed a four-year, $40 million deal with Cox Communications Inc. (NYSE:COX), the nation’s sixth largest cable company. Under the deal, Cox will install Sorrento’s GigaMux metropolitan dense wavelength-division multiplexing (DWDM) systems in its Virginia, California, Arizona, and Louisiana locations (see Cox Deploys Sorrento Metro Solution).
This is a big deal for Sorrento for two reasons: First, it’s a vote of confidence in their technology, which some had doubted because of the firm’s management troubles and lousy marketing (see Osicom Investors Rebel). Sorrento, indeed, is starting to turn things around. Second, the deal is further evidence that even in a crowded market such as the metro DWDM space, you don’t have to be Cisco-sized to get contracts (see Report Forecasts Metro Winners, Losers ).
On the technology front, Sorrento says it beat out nine other vendors for the Cox contract. Its GigaMux product can make one strand of fiber in a network do the work of 64 fibers, thus saving a carrier like Cox lots of money as it upgrades its cable networks nationwide.
There was no vendor financing in this deal, and Cox Communications is not a Sorrento investor, according to Demetri Elias, Sorrento Networks' vice president of marketing. “This was a hard-earned, competitive win,” he says.
In a prepared statement, Cox’s vice president of engineering, Albert Young, said that Cox chose Sorrento after “a very rigorous evaluation process with a large number of companies.”
Mr. Young’s words have helped lift the spirits of Osicom investors, who’ve been carefully watching as Sorrento and Osicom wriggle out from under several years of lousy management. Around midday Wednesday, Osicom shares had climbed $4.38 to $23.50, a 23 percent jump, and showed no signs of slowing down.
Representatives of Cox Communications did not return calls for comment.
This deal is also a huge vote of confidence in Sorrento itself. Though Sorrento already has an impressive customer list, until now they haven’t been able to show much for it, says Joe Gladue, director of research at The Chapman Company. “A couple of announcements like this and some revenues on the top line will do wonders for the company,” he says.
Sorrento already counts among its customers United Pan-Europe Communications (NASDAQ:UPCOY), Inrange Technologies, and AT&T Broadband. UPC is an investor in Sorrento, and Inrange president Gregory Grodhaus occupies a Sorrento board seat.
Startups, too, should be encouraged by Sorrento’s deal, says Anna Reidy, a senior analyst with RHK Inc.. “With all the major players in this space, it is pretty significant for a relatively new company to win the deal,” she says.
Elias says the deal with Cox is not a part of the $520 million value that Sorrento had previously put on all its strategic relationships (see Osicom's New Board Game). He won’t say what the company’s actual order backlog is but notes that Sorrento came up with the $520 million figure by adding all of its agreements and commitments from customers to buy or resell Sorrento gear.
“Shipping products and building our credibility will allow us to be one of the survivors in this crowded space,” Elias says.
-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com