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Tekelec Is Buying Taqua

Light Reading
News Analysis
Light Reading
2/24/2004

Signaling software and gateway company Tekelec Inc. (Nasdaq: TKLC) has agreed to buy Taqua Inc. and will announce the deal on Wednesday morning, Light Reading has learned from two sources close to Taqua. In addition, investment bank Robert W. Baird & Co. Inc. touted the coming deal in a note to clients published Tuesday.

One source says that Tekelec will only pay $120 million for Taqua. Baird's analysts say the price tag is closer to $130 million. Both figures are considerably less than the more-than $140 million that Taqua has raised in funding since its inception six years ago.

Tekelec can afford either number. The company had $339 million in cash and investments as of December 31, 2003.

There does appear to be some overlap in the deal. Tekelec owns 52 percent of Santera Systems Inc., another Texas-based switch maker that makes a larger box aimed at bigger networks. The SanteraOne, Santera's flagship product, is a switch that combines the functions of a Class 4/5 switch, an ATM switch, and a media gateway in one chassis.

Both Taqua and Tekelec (through its stake in Santera) compete for the same carrier business in some cases, but each vendor's approach is unique. Santera comes from the data world and speaks TDM when it has to; Taqua has focused on a next-generation Class 5 switch, though it's updated it with newer data features. Taqua's circuit switch has evolved to include a VOIP gateway. The company's products generally are aimed at replacing central office switches in networks that serve anywhere from 600 to 80,000 subscribers.

Baird analysts say Taqua appears to be making more hay than Santera at the moment. "Taqua has about 85 customers... [and] brings a different softswitch solution, greater market share, large installed customer base and new end markets," writes Baird analysts Kenneth W. Muth, Theodore J. Moreau, and Brad Zoltak.

Its strength has been giving independent operators a way of replacing their legacy voice switches with newer Class 5 switches. But, thanks to a series of linecard upgrades, those carriers using Taqua's gear now have a strategy to get from a TDM to an IP world.

The Tekelec/Santera/Taqua connection appears to have fairly deep roots. Taqua's CEO, Charles Vogt, and its VP of marketing, Jody Bennett, are former Santera executives.

One source familiar with the situation says that Tekelec, flushed form its success in working with Santera, is simply after a larger product portfolio in the voice-over-packet switching market. Specifically, it likes both approaches and wants to capture more of the voice switching market with two distinct approachs, product overlap be damned.

Tekelec also wants a bigger piece of a growing market. There are about 1,300 carriers in the U.S., with an installed base of about 24,000 local phone switches, according to industry analyst Kermit Ross, principal of Millennium Marketing.

The next replacement wave of these switches, which includes the conversion from circuit to packet technology, has already begun and will run its course over the next 15 to 20 years, exhausting some $40 billion in capital, writes Ross in his report, "A Switch to Packet: U.S. Central Office Switch Market Brief."



Infonetics Research Inc. says softswitch revenues for next-generation switches will grow from $380 million in 2003 to $1.9 billion in 2007.

— Phil Harvey, News Editor, Light Reading

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palaeozoic
palaeozoic
12/5/2012 | 2:22:44 AM
re: Tekelec Is Buying Taqua
$120m, $130m, who cares? A year ago getting your money back after six years of diligently toiling to produce value would have been viewed as a win. Unfortunately that is no longer the case. Looks like a bail out for Taqua and a second at bat for Tekelec.
diag_eng
diag_eng
12/5/2012 | 2:22:41 AM
re: Tekelec Is Buying Taqua
Taqua/Santera/Tekelec won't amount to much. Here are two reasons why:

1. Their customer base is primarily xLEC's, whose market is basically dead with no new funding in sight.

2. There is no repeat business from the xLEC customers they do have.

The real IP Telephony market dollars are in the RBOC's & MSO's -- two market segments with long sales cycles. These two markets are nearly impossible to penetrate if you weren't in their labs a year or more ago.

fgoldstein
fgoldstein
12/5/2012 | 2:22:39 AM
re: Tekelec Is Buying Taqua
Taqua's doing okay now. They've got a niche in the rural-LEC market, the niche that the DMS-10 filled 20 years ago and which Nortel has not been paying much attention to. Redcom's nipping at the low end there, but not a lot of others have the REA sticker yet.

The CLEC market is far from dead, especially for companies like Taqua. While the public-capital markets have dried up, those companies were mostly overfunded and badly managed. Hint: A CLEC that bought a 5ESS is dead meat. I personally know of a quite a few small CLECs, privately held, that are building up their networks. For such companies, one Taqua goes a long way; Taqua is a leading player in that space (along with Telica, privately-held Metaswitch and, I suppose, the remnant of Coppercom). Their customers know about them, but the "analysts" on Wall St. don't.

I just hope that the Tekelec merger doesn't hurt Taqua's product or support.
sevenbrooks
sevenbrooks
12/5/2012 | 2:22:38 AM
re: Tekelec Is Buying Taqua

Having seen the Taqua switch up close and personal, I would say its challenged in many areas that many folk would consider "works right".

Its short on features and its got problems with its "carrier classness".

Tekelec have bought 2 such switches at the moment and we shall see how they can make these switches into real businesses.

seven
zoro
zoro
12/5/2012 | 2:22:34 AM
re: Tekelec Is Buying Taqua
Taqua brings the seasoned managers that knows business and how to make money that the other switch not have. You know how they paid for the other one?
sage1234
sage1234
12/5/2012 | 2:22:33 AM
re: Tekelec Is Buying Taqua
test
themaninblack
themaninblack
12/5/2012 | 2:22:26 AM
re: Tekelec Is Buying Taqua
...will probably be Tachions intellectual property (both pages of it).
jvancura
jvancura
12/5/2012 | 2:22:14 AM
re: Tekelec Is Buying Taqua
There is a revenue stream out there for selling to the IOCs. A few companies have made a run rate
business on the order of maybe $10M / quarter
in this area. Although the price tag seems high
for the cash contribution these businesses are
able to generate.
billy_fold
billy_fold
12/5/2012 | 2:22:08 AM
re: Tekelec Is Buying Taqua
I think that Tachion's intellectual property which was written on two small sheets of toilet paper came up missing somehow. Oh well, better luck next time.

-billy
themaninblack
themaninblack
12/5/2012 | 2:22:07 AM
re: Tekelec Is Buying Taqua
Billy,

Said small sheets were probably destroyed in the customer lab trial fire.

Salute!

- The MIB
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