Tekelec Switching Faces Gallows

Unable to sell its switching business, Tekelec may end up killing it off, one analyst suggests.

Jefferies & Co. Inc. analyst George Notter downgraded the company's stock to Hold from Buy in a note published this morning, saying the shutdown of the Tekelec switching business is now "a real possibility."

It's not a pretty scenario. Tekelec, which had hoped to get $25 million for the business, instead could end up paying $25 million in shutdown costs, Notter writes.

"Our downgrade is motivated by valuation and our view that it is increasingly unlikely the company will get a positive outcome on the sale of the switching division," Notter writes in the note.

Tekelec shares were off 91 cents (5.6%) at $15.31 in midday trading on the Nasdaq. (See Tekelec Reports Q3.)

In November, Tekelec was reportedly close to selling the switching business to Ericsson AB (Nasdaq: ERIC). That deal didn't materialize, and in December, Tekelec announced it had retained JPMorgan Partners to help it "look for strategic alternatives" for the business. (See Sources: Tekelec to Sell Switching Business and Tekelec Still Seeking Switch Suitors.)

Notter says in his note that Alcatel-Lucent (NYSE: ALU) appeared to be a logical acquirer for the switching business. Alcatel sells Tekelec's Santera media gateway as part of its Spatial Wireless switching solution. Notter now believes there is "no chance" of Alcatel-Lucent buying the division.

Tekelec wouldn't comment on Notter's report, although a spokesman says Tekelec will provide an update on the switching business situation at the company's next earnings call. The date for that call has not yet been set.

Tekelec got into the switching business with the acquisitions of Taqua, Santera, and VocalData in 2003 and 2004. (See Tekelec Is Buying Taqua, Santera, Tekelec Fuse Switching Units, and Tekelec Connects With VocalData.)

— Mark Sullivan, Reporter, Light Reading

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Ben_Stern 12/5/2012 | 3:15:37 PM
re: Tekelec Switching Faces Gallows Taqua, Santera & VD all sucked in 2003 and 2004 when they were purchased by Tekelec. Would anyone believe they sucked any less in 2007? Get real. Dump them at Goodwill where they belong.

"Shut up. Sit down. I told you not to be stupid you moron." -Ben Stern
^Eagle^ 12/5/2012 | 3:15:36 PM
re: Tekelec Switching Faces Gallows meant to be clear. I do not think they are selling off their ss7 business. post had poor syntax.


^Eagle^ 12/5/2012 | 3:15:36 PM
re: Tekelec Switching Faces Gallows The story is a little misleading. Tekelec has been trying to sell off those Taqua, et al assets related to various softswitch and gateway applications.

But Tekelec also makes hardware based large scale signalling switches for doing SS7 signalling.

I do not think Tekelec is not selling off it's big SS7 STP switching business. The SS7 products and team are the cash engine that drives almost all of Tekelec's revenue and profits (when there are any). To many the decision for Tekelec to purchase those companies was a mistake from the beginning. Waste of money. Waste of time, waste of resource. Damaged a fairly well run company up to that point.

Remember, Tekelec was an old line test & measurement company with LOTS of software and protocol expertise who closed off the portable box analyzer business after they used their software expertise to make SS7 switches. They are pretty large in this market with lots of wins in wireless networks, telephone networks, international networks, etc. They have traditionally been one of the 3 largest vendors in this sector.

So, I would be surprised if they are selling off their "real" switch business. The other stuff was a diversion.


p.s., I do not work for Tekelec and do not own stock in it.
Lite Rock 12/5/2012 | 3:15:36 PM
re: Tekelec Switching Faces Gallows Does the Author have any kind of Axe to grind here?

Please disclose your past connections so we can gloat along with you and your free conscience.

Mark Sullivan 12/5/2012 | 3:15:35 PM
re: Tekelec Switching Faces Gallows By "switching" we (and the company, and the analysts) are referring to the Taqua, Santera, and VocalData products. We understand the Tekelec signalling business to be alive and well, and not for sale.
dscguy 12/5/2012 | 3:15:34 PM
re: Tekelec Switching Faces Gallows Typical reporting by LR. A column searching for a story. Please pick an angle and stick with it.

In November, LR reported that TKLC was definitely selling Switching to Ericsson for $50MM, oops, no wait, later that day, they hastily retracted that story and revised it (to match the statements from the TKLC earnings call) to read that TKLC had retained JPMorgan to evaluate opportunities. So the original story -- apparently poorly sourced -- turned out to be a shot in the dark that proved wrong.

Now LR reports that TKLC isn't selling their Switching business at all, but may completely shut it down? And why would they do that? Look at the financials; with $400MM in cash, they aren't exactly a start-up that's running out of money. Why would they strand their customer base like that? Wouldn't such a move hurt their credibility in the marketplace for their Signaling products?

As another reader suggested, someone at LR seems to really have an axe to grind with TKLC. I notice there was no response from LR on those suppositions...
SpinDawktar 12/5/2012 | 3:15:33 PM
re: Tekelec Switching Faces Gallows Agreed. With each posting on TKLC - the credibility drops for LR. Where is the due diligence before posting such assertions? I see another retraction coming soon.....
googol_byte 12/5/2012 | 3:15:33 PM
re: Tekelec Switching Faces Gallows I remember reading the article that Ericsson was buying this division, and quoting it ot others like it was fact, when it never really happened.

Similarly, LR reported that Ericsson was buying Entrisphere - another deal that never happened.

What's up with pulling the trigger so early on these deals that don't happen? A little more digging is probably in order before authoring these articles.
spinmeister 12/5/2012 | 3:15:32 PM
re: Tekelec Switching Faces Gallows A classic Two Buck Chuck pump'n'dump replete with sales funnels that were vaporware, and a technical roadmap to nowhere addressing markets that didn't exist. It's a good thing that no rain fell on the documentation, as the watercolors would have run off.

TKLC paid almost $100M for this dog with fleas, and the sales forecasts were complete whiffs from day one when the lights came on and the roaches scattered. Whoever did the due dilly on this from TKLC was not the sharpest tool in the shed.

The incessant whining from the Taqua-ites regarding turf and roadmap commenced on Day One in spite of the dearth of any tangible sales volume, which only served to undermine any progress on the Santera gateway which was doing extremely well given the Spatial relationship. Add to this the complete pile of steaming dung that the Taqua product platform already was, and you have a giant sucking sound on resources trying to integrate this into anything resembling a real business.

If you want to know why this is a sick business they want to shutter look no further than the Tacqua disaster. The other acquisitions were either very cheap or had some tangible sales volume.

Makes you really wonder what's going on in Plano with GENBAND (or whatever they call it today).
firstmiler 12/5/2012 | 3:15:32 PM
re: Tekelec Switching Faces Gallows Tekelec, Taqua, Vocaldata,.... can't you mention Tachion just to stir the embers a bit!

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