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VoIP Systems

As Sonus Shrinks, AudioCodes Stays Firm

Sonus Networks Inc. (Nasdaq: SONS) continues to suffer at the hands of the carrier capex crunch. The VOIP systems firm this morning announced its third-quarter revenues are expected to show a "significant decrease" compared with a year ago, and that its full-year 2008 revenues are likely to be lower than the previous year's total. (See Sonus Unveils Q3 Prelims.)

And the company sees no let up in the current tough trading conditions. "Our business experienced weakness toward the end of the quarter due to several factors including the challenging environment," said CEO Richard Nottenburg in a prepared statement. "We expect this to continue for the foreseeable future."

The sales warnings means Sonus's third quarter revenues, due to be announced on November 6, are expected to be much lower than last year's $76.6 million. Wall Street had been expecting revenues of $88.5 million, so the shortfall against analyst expectations is going to be significant.

But the full year prospects look even more grim. The company reported 2007 revenues of $320.3 million, so 2008 revenues are expected to be below that mark. On average, analysts had anticipated 2008 revenues of nearly $350 million.

And Sonus itself had, until recently, been expecting its 2008 sales to rise. The company had originally predicted a 20 percent growth in full-year revenues, but in August it pared back that forecast, saying growth in the second half of the year wasn't likely to be above 10.5 percent, the rate at which sales had grown during the first six months of the year. (See Sonus Slumps on Slower Growth Outlook.)

Now, though, second half revenues are set to be below $158.4 million, much lower than the $173.7 million achieved in the second half of 2007.

The news sent Sonus's share price down $0.23, or 9.5 percent, to $2.20, while the Nasdaq crept up slightly, by 0.25 percent. The vendor's 12-month low price is $1.99, with a high of $7.59.

News of the expected shortfall follows a turbulent opening nine months to the year for Sonus. Its top management team has changed, and the company has come under pressure from activist investors that feel the company's stock has been in the doldrums for too long. (See Investor Letter Takes Swipe at Sonus, Another Sonus VP Splits, Prepare for Sonus Scrap, and Ex-Moto CTO Tabbed to Run Sonus.)

Sonus is trying to soften the blow by noting that it has no debt, and has "cash, cash equivalents, marketable securities, and long-term investments totaling more than $400 million."

But not every company in the VOIP equipment sector is experiencing such tough times. Shortly after Sonus issued its warning this morning, media gateway and session border controller vendor AudioCodes Ltd. (Nasdaq: AUDC) announced it is "confident that revenues and earnings for the third quarter of 2008 shall exceed revenues and earnings for the second quarter of 2008. The Company also confirms that it has experienced solid business trends in recent weeks." (See AudioCodes Confirms Outlook.)

The vendor, which has been keeping a tight rein on its costs, reported record second-quarter revenues of $45.7 million, and net income of $1.6 million. (See AudioCodes Rakes Netrake.)

Today's bullish statement sent AudioCodes's share price up by $0.18, 8 percent, to $2.43.

So why would AudioCodes not suffer as badly as Sonus in the current economic climate? The answer is likely to be found in the makeup of each company's customer base. Sonus is heavily reliant on North American operators, which were responsible for 80 percent of the firm's sales in the second quarter of this year. And AT&T Inc. (NYSE: T), which has put the brakes on its capex in recent months, is a particularly important customer, generating 40 percent of Sonus's revenues in this year's second quarter.

AudioCodes, meanwhile, has a greater geographic spread of customers and has been increasing its sales to enterprise customers, giving it a broader spread of sales and less exposure to the large carrier market.

As a result, AudioCodes has reaffirmed its guidance for 2008, which is a 15 percent rise in revenues to more than $180 million with "substantial growth" in earnings. For 2007 the company reported a net loss of $1.8 million.

— Ray Le Maistre, International News Editor, Light Reading

netpert 12/5/2012 | 3:30:03 PM
re: As Sonus Shrinks, AudioCodes Stays Firm Sonus is almost as old as VoIP concept itself (ok - a little hyperbole here), unfortunately VoIP has limited market and traditional carriers haven't really embraced it. That leaves Sonus feeding of small new upstarts VoIP providers. That market is quite mature and there is no significant growth there.

Unfortunately, Sonus hasn't bothered to look at new emerging technologies like wireless, mobile services, IMS based cellular infrastructure, hosted web conferencing and all that. How long can a company feed of a 10 year old tecnology without re-innovating itself and its product line? The growth can only come either from inside or from outside acquisitions. They need to add new experineced thinking minds to survive and grow.
FatherTime 12/5/2012 | 3:30:01 PM
re: As Sonus Shrinks, AudioCodes Stays Firm How about the fact that their customers do not like the level of support? Or their class5 solution doesn't compete. You can only do so much with dense (good) and dumb (bad) gateways. Where is their voice application story?
materialgirl 12/5/2012 | 3:30:00 PM
re: As Sonus Shrinks, AudioCodes Stays Firm Dear netpert:
SONS has been talking about IMS, Class 5 and their mobile services for some time, albeit refusing to break out related revenues. Does your post imply these are really straw horses?

Secondly, if AT&T is the lion's share of revenues, how can you say they only sell to small new upstarts.

Is the truth they got one big Class 4 deal with AT&T and that is all installed and that's it, sort of like AVCI?
netpert 12/5/2012 | 3:29:45 PM
re: As Sonus Shrinks, AudioCodes Stays Firm hey Material Girl,

You are the smartest techie - I must say. I agree with you and FatherTime.

ATT, and many other big carriers are perhaps buying their equipment, the problem is that is not a growth market. It is done, installed and over. So, how long will they buy the same old stuff over and over again?

Sonus's problems are the one that all networking startups face - diversify quickly and be more than one product company. Juniper is one company that successfully diversified by doing some quick purchases. Remember Juniper at $5 in 2001 and talk of imminent death in the Valley ? But then they survived now have become a multiproduct company. Sonus management, despite having so much time in the hand, has proven clueless in thinking beyond what they currently do. You don't have to make big purchases but smart purchases..
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