Optical/IP Networks

Tekelec Takes a Hit on Cingular

Deployment problems at Cingular Wireless appear to be the latest bump in the road for Tekelec Inc.'s (Nasdaq: TKLC) partnership with Alcatel (NYSE: ALA; Paris: CGEP:PA). (See Tekelec Rings True at Cingular.)

Tekelec stock was pressured today as Wall Street analysts said a rocky deployment may be straining the relationship.

“In discussions with multiple industry contacts, we have learned that the current deployments of the Spatial Wireless (aka Alcatel) softswitch architecture at Cingular could be encountering some challenges," writes Deutsche Bank AG analyst Brian Modoff in a brief released Tuesday. (See Alcatel Lands Spatial for $250M.) "Issues range from interoperability with RAN suppliers Ericsson and Siemens, performance issues at high loads, advanced feature support as well as switch reliability.”

Tekelec's SanteraOne media gateway has long been sold as part of Alcatel's popular Spatial Wireless softswitching solution.

Fears over future business caused Deutsche Bank to lower the target price of Tekelec stock from $17 to $12.50 Tuesday. The actual stock fell 77 cents (5.7%) to $12.78 in trading Tuesday.

Is Tekelec to blame? Tekelec may in fact be taking a hit for its partner's problems. U.S. Bancorp Piper Jaffray analyst Troy Jensen believes the problems at Cingular involve the integration of Alcatel's Spatial Wireless softswitch, not Tekelec's SanteraOne gateway.

And Jensen says even Tekelec competitor AudioCodes Ltd. (Nasdaq: AUDC) doesn't see an immediate threat of an ouster at Cingular. “They said the same thing that Tekelec is saying: You’re better off being in the network and working through the issues with the carrier than you are being out of the network and hoping you can get in because of the problems."

Not wanting to offend its partner, Tekelec says the issues at Cingular are just normal bumps in the road that happen in any major deployment.

Nokia Corp. (NYSE: NOK) sees the situation differently. Heavy Reading analyst Gabriel Brown says the vendor has been tracking the situation very closely and believes itself to be well positioned should the Spatial Wireless solution fail. (See Cingular, Nokia Extend Deal.) In fact, Brown says, Cingular appears to have purposefully left the door open to Nokia in the way it originally announced the Alcatel/Spatial contract win.

A February Light Reading article said that some feared that Tekelec’s SanteraOne media gateway could be ousted from the Spatial solution in favor of an Alcatel-owned gateway. (See Alcatel Gateway Troubles Tekelec.)

The Deutsche Bank research brief cited that long-term risk as a reason for its downgrade of Tekelec stock. Tekelec media gateway sales resulting from the Alcatel partnership were $28 million in the third quarter, compared to standalone sales of $5.4 million, according to Deutsche Bank.

Tekelec VP of corporate marketing Mark Whittier assured Light Reading during a meeting last month that Tekelec’s position in the Spatial solution is as strong as ever, and that Alcatel has no plans of substituting in its own gateway.

— Mark Sullivan, Reporter, Light Reading

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