Struggling B-RAS Vendor for Sale

Not everyone is benefitting from the broadband revolution, it seems. Broadband remote access server (B-RAS) vendor Copper Mountain Networks Inc. (Nasdaq: CMTN) is running out of money and has employed investment banker Raymond James & Associates Inc. to try and help it out of its hole (see Copper Mountain Mulls Options).

Its main hope of survival, it seems, is a trade sale, though its current status -- worsening financials, a shrinking valuation, and a lack of traction for its core product -- may not attract many willing buyers.

As Copper Mountain's business has stalled, it's running out of cash. Its revenues are shrinking and its losses increasing -- it lost $5.7 million and posted revenues of just $2.1 million in its second quarter (see Copper Mountain Reports Q2). At the end of that quarter, on June 30 this year, it had $22 million in cash and cash equivalents.

However, it's spending between $5 million and $7 million of that cash each quarter to fund its operations (it burned through $5.9 million in the second quarter) and has only enough greenbacks to last another nine months.

That timeframe would have been even shorter if it hadn't raised $11.25 million ($10.6 million net after costs) from a private placement of 1.25 million shares at $9 each in May (see Copper Mountain Raises $11.25M). The new money was raised in expectation of some significant business for its VantEdge Access B-RAS.

But that business has failed to materialize, and at the close of play yesterday Copper Mountain's share price stood at $6.47. Once the market had closed, the vendor revealed that "the recent cancellation of a large carrier broadband upgrade project and potential delays in decisions from several other large carriers have led us to the conclusion that we must explore strategic options in order to effectively pursue the global broadband market opportunity in the longer term."

That news sent the share price down this morning by 27 cents, more than 4 percent, to $6.20, valuing the firm at $47.6 million.

While the vendor hasn't revealed which carriers are involved, Copper Mountain is thought to have been in contention to win some B-RAS business from SBC Communications Inc. (NYSE: SBC) in an edge equipment process that has already been subject to delays (see SBC Edge RFP Resurfaces).

Those setbacks have left Copper Mountain without any significant business for its B-RAS, though it has just announced a minor deal with an Independent Operating Company (IOC) (see Planters Selects Copper Mountain). And sales and support revenues from the vendor's traditional source of revenues, its CopperEdge 200 DSL concentrators, is falling by the quarter.

So what are the company's options? It could try to cut its costs back and weather the current storm in the hope that some major broadband access deals are concluded in its favor and that its partnership with global equipment giant LM Ericsson (Nasdaq: ERICY) delivers some positive results (see Cisco, Ericsson Join Forces).

Cutting costs is certainly an option under consideration. In its second-quarter report the vendor noted: "In the absence of increased sales of CopperEdge products, or significant sales of the VantEdge product, the Company may seek additional equity or debt financing in the private or public capital markets to obtain the funds needed to continue operations and to demonstrate the Company’s future viability as a going concern to potential and existing customers. If the Company is unable to obtain sufficient financing, the Company may have to further reduce expenses through workforce reductions and other cost cutting measures. Management believes that such expense reduction, if appropriate, would need to occur during 2004 in order for the cost savings to be meaningful to us."

But what about a sale? Heavy Reading analyst at large Graham Beniston, who examined the B-RAS sector for a major report (see Next-Generation DSL Equipment: The Path to Profitability), says Ericsson is a potential acquirer, "though I'd be surprised if they stepped in." He also thinks Copper Mountain would make a reasonable fit within Alcatel SA's (NYSE: ALA; Paris: CGEP:PA) portfolio, but that deal seems "unlikely." (See Alcatel Goes Mid-Range.)

And Beniston's not surprised to see a struggling B-RAS vendor. "I've been predicting this [see Nortel, Laurel Extend B-RAS Lines]. The market still favors the incumbent equipment providers, like Cisco, Juniper, and Redback."

But it's not as if the vendor has a weak product. Beniston says Copper Mountain set out to provide a highly scaleable product for operators, and achieved that goal, beating both Cisco and Juniper in the central office B-RAS scaleability ranking when the products were compared for his report.

"These guys have a real product, they know what a B-RAS is all about, and this is a hot market, so there's hope," he says, but it was always likely that one or more of the smaller players in the B-RAS sector, where CoSine Communications Inc. (Nasdaq: COSN), Laurel Networks Inc., and Network Equipment Technologies Inc. (net.com) (NYSE: NWK) are also battling against the major vendors, would struggle to survive, says Beniston.

— Ray Le Maistre, International News Editor, Light Reading

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rbkoontz 12/5/2012 | 1:19:00 AM
re: Struggling B-RAS Vendor for Sale Alas, let's hope this is first of many struggling broadband vendors to go bust. The industry cannot return to health unless there is an 80% fallout of the weak players.

Planters Tel is not a CLEC - its an IOC as indicated in the linked CMTN press release. If you don't understand the vast difference between them, I'm sure someone can enlighten you.
digits 12/5/2012 | 1:18:50 AM
re: Struggling B-RAS Vendor for Sale Most Wanted
Indeed it is an IOC. Slip of the carrier acronyms. Correction made, and thanks for the spot.

Ray Le Maistre
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