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Optical/IP

Tekelec's Monday Blues

Don't be surprised if the Boomtown Rats' 1979 New Wave anthem I Don't Like Mondays is the current company song at signaling and VOIP systems vendor Tekelec Inc. (Nasdaq: TKLC). Because yesterday the firm had a stinker.

Tekelec announced Monday just after the markets closed that its CFO, Paul Pucino, had resigned and will leave by the end of January 2005 to join online banking services company Digital Insight Corp. (Nasdaq: DGIN) as CFO.

Pucino, who has been with the company for four-and-a-half years, will leave after the vendor's fourth-quarter results are presented towards the end of January.

In early morning trading, Tekelec's shares were down $1.61 to $19.68 (7.5%). That comes on the heels of a 4.5 percent drop in Tekelec's share price on Monday.

Tekelec shares were pressured Monday by a downgrade from analysts at CE Unterberg Towbin, who took the company's stock from "buy" to "market perform." In a research note issued Monday, the Unterberg analysts said the company's recent share price weakness is driven by concerns about the vendor's near-term revenue potential.

Tekelec has a strong customer base in signaling systems and, through a string of acquisitions, has built itself a VOIP gear business to provide a sales growth path (see LR M&A Strategy Finalists Step Up ). However, analysts are now worried that signaling system sales may dip before the VOIP business starts to generate meaningful revenues.

The chief cause for concern stems from the ongoing wireless operator consolidation saga in the U.S., where Sprint Wireless (NYSE: PCS) and Nextel Communications Inc. (Nasdaq: NXTL) are expected to merge (see Nextel-Sprint: Winners & Losers).

Such a merger, and other potential M&A permutations among the U.S. mobile carriers, could put those operators' capex plans on ice and affect Tekelec's revenues, about 80 percent of which come from its signaling division (see Tekelec Tops $100M).

The results of the M&A activity are hardly clear, though. As with the merger of Cingular Wireless and AT&T Wireless Services Inc. (NYSE: AWE), there may be an upside for Tekelec once any deal is done (see Tekelec Rings True at Cingular).

However, while both Cingular and AT&T Wireless were already Tekelec customers, that's not the case with Sprint/Nextel. While the latter is a customer, Sprint Wireless uses rival signaling technology from Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

"While this could also present an opportunity for Tekelec, it is extremely difficult to displace an incumbent vendor such as Alcatel," note the Unterbergers. "Also, indications seem to be that Sprint would be the acquirer, and Sprint's technology would be the likely survivor long-term."

Another downer on Tekelec's shares, reckons the Unterberg team, is its VOIP systems, which currently account for about 15 percent of sales. Short-term revenue expectations might not be met unless some major deals are struck soon, say the analysts.

— Ray Le Maistre, International News Editor, Light Reading

alchemy 12/5/2012 | 3:30:36 AM
re: Tekelec's Monday Blues materialgirl writes:
Tekelec seems to be a third tier VoIP player. Their customer list contains very obscure service providers. They may just be missing the real VoIP party.

The Tekelec product offering is switching systems from two startups that never quite made it. Those startups were founded to sell into the now-dead-and-buried CLEC space. They still have a pulse because there's government money funding buying rural switching office upgrades. That's why the customer list looks so obscure. In that market space, you have immense cost of sale since you don't have much repeat business. That results in pretty pathetic profit margins. Tekelec missed out on Cable VoIP and it's hard to imagine a Verizon or an SBC going with them.

I imagine that Tekelec is also making a decent business in the signaling gateway space. You're not going to get rich in it but the margins are good.
dljvjbsl 12/5/2012 | 3:30:34 AM
re: Tekelec's Monday Blues
They still have a pulse because there's government money funding buying rural switching office upgrades. That's why the customer list looks so obscure. In that market space, you have immense cost of sale since you don't have much repeat business. That results in pretty pathetic profit margins. Tekelec missed out on Cable VoIP and it's hard to imagine a Verizon or an SBC going with them.


This rural indepndent market the one that gave Nortel its start in the US with DMS.

Nortel's recent product portfolio has been a disatrous example of what bad management can do to a company. However DMS was a tremendous success. The independent rural market was the basis of this success.
OldPOTS 12/5/2012 | 12:59:17 AM
re: Tekelec's Monday Blues And I keep hearing VoIP is replacing everything?

OldPOTS
OldPOTS 12/5/2012 | 12:59:17 AM
re: Tekelec's Monday Blues And I keep hearing VoIP is replacing everything?

OldPOTS
materialgirl 12/5/2012 | 12:59:14 AM
re: Tekelec's Monday Blues Tekelec seems to be a third tier VoIP player. Their customer list contains very obscure service providers. They may just be missing the real VoIP party.
mrdid13 12/5/2012 | 12:58:58 AM
re: Tekelec's Monday Blues Tekelec (Taqua/Santera) has a small list of traditional IOC customers as well as a few small CLECS....nothing unusual about that. We need to take a "wait and see" before we can pass judgement. This is the sort of thing that is still in its very earliest phases of deployment outside of the enterprse space.
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