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VoIP Systems

Sonus Leaps on Update

Softswitch vendor Sonus Networks Inc. (Nasdaq: SONS) saw its stock leap by 44 cents, more than 6 percent, to $7.03 in early trading Wednesday after issuing a business update and receiving a filing extension from Nasdaq . (See Sonus Provides Update .)

Sonus says that "very strong customer activity in the fourth quarter of 2006" has resulted in record orders for that quarter and for the whole of 2006. The vendor says the surge has been fueled by ongoing next-generation network rollouts from both existing and new customers and from general VOIP traffic growth. (See Sonus Touts Traffic and VOIP/IMS Market Up 31%.)

Orders, though, do not immediately translate into revenues: Sonus has a long revenue recognition cycle due to the software-centric nature of its products.

The vendor expects to provide further details, and release fourth-quarter financial details, by, or on, March 1, 2007. On average, analysts are expecting revenues of $65.9 million and earnings of 3 cents per share.

In the meantime, because of the company's ongoing probe into historical stock option grants, it still hasn't filed its second- and third-quarter financial reports for 2006, though top-line numbers have been made public. (See Nasdaq Warns Sonus, Sonus Opens Options Probe, Sonus Reports Q3, and Sonus Reports Q2.)

Sonus has completed its internal investigation and now says it's working towards filing those reports with the Securities and Exchange Commission (SEC) "to regain compliance with NASDAQ's listing requirements."

But there's still doubt as to whether the company can meet its deadlines. Sonus said today that Nasdaq's Listing Qualification Panel has given Sonus until February 12 to file those reports, but that it intends to ask for a review of that deadline because it can't be sure of filing by that date.

The vendor's business prospects are outweighing any current concerns about filing requirements, though. Having seen its share price hover between $4 and $5 for much of 2006, Sonus saw its stock break through the $6 barrier in the final two months of the year, and stay there, as industry reports cited market share strength and better than industry-average growth. (See Sonus Boasts Share and Sonus Touts Growth.)

And analysts are bullish about the vendor's prospects in 2007. Last month, Citigroup 's Michael Genovese raised his price target for Sonus to $9 from $7.10, citing long-term revenue and earnings growth prospects, despite some off-putting risks such as long revenue recognition cycles, over-reliance on a small number of key customers, and the ongoing stock probe.

The team at Lehman Brothers also expects Sonus to outperform in the growing VOIP market. In a research note issued in December, Jiong Shao and Marcus Kupferschmidt said the softswitch firm has "executed better than we expected" during the past 12 to 18 months, and that the near-term business trends were strong. The Lehman team has a price target of $7.50 for Sonus.

— Ray Le Maistre, International News Editor, Light Reading

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