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VoIP Systems

Newport Needs Another $27M

Session border controller vendor Newport Networks plc (London: NNG) is issuing 103.3 million new shares to raise £15.5 million (US$27.2 million) in cash after anticipated deals failed to materialize in 2005.

Newport announced its new stock issue just two days before Christmas, and with the new shares being offered at just 15 pence each, the vendor's share price slumped 26 percent from its pre-Christmas 27 pence to just 20 pence on the London Stock Exchange during the festive period. Today it stands at 21 pence.

That's a far cry from the 150 pence levels the stock was hitting early in 2005 when the vendor and its backers were confident that Tier 1 vendors would start investing in high-end session border controllers (SBCs) that can manage the transfer of large volumes of traffic between IP networks, the market that Newport has targeted from its inception.

It's also a far cry from the 71 pence listing price when the firm joined the public market in May 2004, when it raised £27 million ($47.5 million) before it had even launched its core network product. (See Session Controller IPO Scores Success.)

Newport says the larger deployments it has been targeting at Tier 1 carriers have not materialized as network replacement projects are suffering delays of between six and nine months, and that 2005 revenues will likely be just £1 million ($1.76 million), way below the modest market expectations of £3 million ($5.3 million).

Rivals were quick to pounce on the news of Newport's new issue, which needs to be cleared at an Extraordinary General Meeting (EGM) of investors in London on January 23, suggesting that the company needed the money to survive.

Kevin Mitchell, director of solutions marketing at Newport rival Acme Packet Inc. (Nasdaq: APKT) and former Infonetics Research Inc. analyst, says this is "negative news for Newport. It's not managing to establish its own cashflow, and struggling to establish customer traction. Like many industry segments, there are too many players still in the session controller market, and as time goes on there will be success and failures and consolidation."

Newport strongly refutes claims that it is in any difficulties, noting that it has supplied its technology to 13 customers in the past year, and that big wins are in the pipeline in the coming months. (See Newport Wins Broadnet Deal and Newport Edges Towards Target.)

In particular, the vendor says it's close to securing a major deal, via a major vendor partner, from a Tier 1 carrier that's building out a next-generation network, though Newport declines to identify the prospective customer.

Newport vice president of marketing Mike Wilkinson says Newport needed the extra cash to strengthen its balance sheet "because of the prospects we have in the pipeline." Those prospects include the imminent Tier 1 order that he predicts will be the SBC market's "biggest ever deal."

A lot of SBC contracts to date have been relatively small, says Wilkinson, but major carriers are now gearing up for "network replacement projects," and the "amount of gear we would need to deliver for such a project would be very significant. We need the extra capital to make sure we don't disadvantage ourselves" when the order comes in.

So who could this big Tier 1 carrier be? Newport is believe to be in early trial stages with Telecom Italia (TIM) , but that engagement is not thought to be developed enough to result in an imminent deal.

The company has also been in BT Group plc (NYSE: BT; London: BTA)'s labs, but its main channel there was as one of Marconi Corp. plc 's partners bidding for BT's 21CN project, where Marconi crashed and burned. (See Marconi in Turmoil and Ericsson Buys Bulk of Marconi.)

Other possibilities include Cable and Wireless plc (NYSE: CWP) and any of the Scandinavian incumbents, where Ericsson AB (Nasdaq: ERIC), which has inherited Marconi's strategic relationships, is well positioned. (See Marconi Takeover Cleared.)

Newport will need to deliver something big, and soon, though, if it is to retain the confidence of investors and the carrier community. But the company remains confident, saying that it expects multiple multimillion-pound orders during 2006, and that its potential 2006 revenues pipeline is £40 million ($70.3 million).

— Ray Le Maistre, International News Editor, Light Reading

xyzzy12 12/5/2012 | 4:10:19 AM
re: Newport Needs Another $27M Sounds like Newport is barely treading water. I heard Nexrake could be next. Who are the other SBC players and how are they doing?
voyce_overipee 12/5/2012 | 4:10:18 AM
re: Newport Needs Another $27M I'm in a US provider and I never hear about Newport, ever. Acme, Netrake, and Nextone are all we connect to. In fact I don't think I've ever even seen a newport sales guy other than at VON. Same with kagoor/juniper sales guys who disappeared overnight when they got acquired.

Netrake could be in trouble because its obvious one of the other vendors owns the tier-1, and the other one owns the tier-3, and there aren't many tier-2 to go around. So they're probably getting squeezed out. Maybe one of the voip solution vendors should buy them. (hint, hint Sonus!)
Upside_again 12/5/2012 | 4:10:16 AM
re: Newport Needs Another $27M The release only showed europe deals. Anybody selling anything here?
tegigthecat 12/5/2012 | 4:10:04 AM
re: Newport Needs Another $27M From what I can tell the high end SBC market is starting in 2006. Witness the ACME 9000 and Juniper VF4000 announcements timed for '06. No surprises that Newport need extra cash to hit the high end market window but they are there first. According to their web site most of their business is in Europe and Asia where the big devices are needed for PSTN network replacement (lots of traffic). As far as I can tell the US market is mainly overlay so much smaller end-user numbers at the moment.
netgenius 12/5/2012 | 4:07:47 AM
re: Newport Needs Another $27M *death dirge plays in the background*

Unfortunatly, TDM to VOIP network change outs do not involve the types of sweeping change that Newport is portraying. From what I've seen large carriers are relativly slow to adapt VOIP..a faster than normal model would involve somewhere in the order of ~10 to 20 Gig-E's worth of voice DS0's per year during the first 12 months. The risk for any carrier moving faster than that is very large and could jeapordize existing revenue and customers. I'm not saying it's impossible but I'm leary of statements that contradict historic carrier behavior.

So, realistically where can Newport get revenue? And if they do land a single Tier-1 customer...how can a 1-2M/year deal support the weight of a public company with a huge run rate? I find it very doubtful that any tier-1 carrier would trust their VOIP traffic to a company with no tier-1 operational expeirence and shaky financial footing.


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