Sonus Looks to Buy & Get Bigger
Sonus Networks Inc. (Nasdaq: SONS) CEO Hassan Ahmed says he's ready to play a role in the current consolidation process sweeping the telecom equipment sector. But he wants Sonus to be the predator, not the prey.
Talking to Light Reading in London as his company announced a multimillion-dollar deal with up-and-coming broadband service provider Carphone Warehouse Group plc (London: CPW), Ahmed said Sonus has a "strong balance sheet" and "$340 million in cash," and it is looking to expand by making acquisitions. (See Carphone Uses Sonus for VOIP, Sonus Shows Promise in Q4, and Sonus Reports Q1.)
Those acquisitions will expand Sonus's IMS capabilities, he noted, with an emphasis on applications development and delivery. "Carriers are looking to build service bundles and develop applications beyond voice," said Ahmed. Sonus will look for acquisition targets that will extend its existing service delivery and development capabilities.
Best known for its softswitch and media-gateway products, Sonus has already developed its own applications hosting and development platform, the IMX Multimedia Application Platform. (See Sonus Struts its Stuff.)
But it's clear the company wants to extend those sorts of capabilities. Already this year it has announced a number of partnerships and marketing agreements with companies, such as NMS Communications Corp. and IP Unity Corp. , that extend Sonus's service creation, delivery, and management offerings in the fixed and mobile sectors. (See Sonus Teams With NMS, Sonus, IP Unity Team Up, and Sonus Strikes Partnerships.)
Is privately held IP Unity the kind of company Sonus is eyeing? Not surprisingly, "Sonus will continue to evaluate opportunities and make investments that we feel are in the best interest of our customers and shareholders," is the official company response to that follow-up question.
Ahmed wasn't shy when it came to passing judgment on some of his larger competitors. The CEO says Sonus is small enough to be able to react quickly to market developments and sustain a profitable business in a niche segment and therefore doesn't need to find a merger partner or be acquired by an industry giant, such as the soup-to-nuts company being formed by Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU), to survive.
Nortel Networks Ltd. , however, is "depositioned" following the M&A deals that have created supersized vendors, reckons Ahmed. (See Nokia, Siemens Create Networks Giant, Alcatel, Lucent Seal Deal, and Ericsson Buys Bulk of Marconi.)
"Nortel is neither a one-stop shop, nor a nimble innovator," and needs to find a way out of that hole, Ahmed says.
Not that the Alcatel/Lucent combination is any better placed, adds the Sonus CEO. "That deal is all about synergies, not growth or innovation. The management [of Lucatel] will be focused inwards on finding the cost savings and synergies they need," in order to not be focused on the market and customers, he says.
"We had to focus inwardly in 2004," remembers Ahmed, "and it was very hard to concentrate on growth during that time." (See Sonus Cleared by SEC, Stock Jumps and Sonus Drops a Bomb.)
It's not as if Ahmed can concentrate solely on growing Sonus. He does have a hefty incentive to do so -- his maximum 2006 bonus of $318,750 would be paid if Sonus meets certain targets, according to SEC filings. But, even though the CEO and his team expect revenues to grow in line with the expected 20 percent to 25 percent annual growth in the VOIP equipment sector, analysts are still concerned about fierce competition from larger vendors.
There are also lingering concerns about the unpredictability of the vendor's quarterly numbers, and about its reliance on a relatively small number of high-volume customers.
And at $4.56, the Sonus share price is some way off its 12-month high of $5.99, even dipping below $4 earlier this month.
Add to that the investor class action lawsuit announced in January this year, and the Sonus CEO has plenty of internal issues to ponder as Sonus continues to grow and hunt for M&A prey. (See Sonus Faces Class Action.)
— Ray Le Maistre, International News Editor, Light Reading