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VoIP Systems

Tekelec Taqua Saga Drags On

Tekelec announced Tuesday it will take $51.3 million in charges related to the poor outlook for its Taqua softswitching business. And Wall Street sees the move as the first step toward the discontinuation of the business. (See Tekelec Takes Its Time.)

Investors weren't happy with the news. Tekelec's stock fell $1.46 (9.79%) to $13.45 in normal trading on Wednesday. After hours, the stock fell another $0.25 (1.86%) to $13.20.

In a press release, Tekelec stated that about $22.7 million of the charges against earnings it is taking relate to the write-off of "Taqua purchased technology," and about $28.6 million of the charges relate to "the impairment of the goodwill associated with the Taqua reporting unit."

The company’s management says revenue and orders for Taqua were far below expectations for the fourth quarter of 2005 and the first part of 2006. The Taqua business has been generating only $2 million to $3 million in revenue in recent quarters, Jefferies & Co. Inc. analyst George Notter estimates.

Janney Montgomery Scott LLC analyst Bill Gildea believes Taqua revenues would have to reach $7 million to $8 million per quarter to hit break-even.

“It’s all relative to how well we anticipated the business would do when we bought it -- those original projections are how you calculate the goodwill of the company," Tekelec CFO Bill Everett tells Light Reading. "So if you don’t achieve those, you end up having to take the impairment charge.”

While continuing to support the product line and customers, Tekelec says it will take steps to reduce the Taqua unit’s operating expenses. CE Unterberg Towbin analysts estimate the division was costing Tekelec between 4 and 5 cents per share in earnings every quarter.

A Tekelec spokesman declined to say whether Taqua engineers or salespeople would be let go as part of the cost containment efforts.

Still, the net result of Tekelec’s actions could be the appearance that the Taqua business appears to have been placed in “maintenance mode.” Prospective customers aren’t likely to throw in with a technology platform with no clear and well funded development path.

Tekelec purchased Taqua in February 2004 for approximately $85 million cash, plus the assumption of Taqua’s outstanding options. (See Tekelec Announces Taqua Purchase.)

The Taqua product is a small Class 5 integrated softswitch and media gateway that is targeted mainly at the IOC market. There, it competes with the likes of CopperCom and Metaswitch Networks .

“If you look at Tekelec’s Taqua revenues, it’s pretty clear we don’t lose very often to them,” says MetaSwitch marketing VP Andy Randall. “The Taqua platform was built for what the ILECs were looking at five years ago.”

Randall says the Taqua product is “still a TDM switch at heart” in a carrier market that has realized the need for true “next-generation” switches. Such devices, Randall says, play nicely in IMS environments, and they separate call session control functionality and media gateway functionality at the hardware level. (See Tekelec Buys IMS Know-How.)

“If you haven’t built that from the beginning it is very hard re-architect," Randall says.

Randall isn’t the only one who believes the Taqua product's time has passed. “In our view, it's more strategic to buy a FTTX-capable access platform and run voice-over-broadband rather than deploy a more traditional voice switch,” Notter writes. “In the end, we think the decision to effectively shut down Taqua is the right one."

Taqua was one of three switching companies purchased by Tekelec as part of a bid to become a next-generation switching company. The others are Santera and VocalData. (See Tekelec Buys out Santera .) A discontinuation of the Taqua business would be a painful blow to the company’s strategy. (See Tekelec Takes a Hit on Cingular.)

“I think Tekelec’s whole adventure into the switching space was a misadventure,” says consultant Kermit Ross of Millennium Marketing. Ross was VP of marketing at Taqua in the late 1990s. (See Alcatel Gateway Troubles Tekelec.)

“I think that’s one of the reasons that Fred Lax, who was the CEO of Tekelec that did all this, left awhile back,” Ross says. “I think he saw there was a little leak in the keel of the ship and he went for the lifeboats.” (See Tekelec CEO Resigns .)

— Mark Sullivan, Reporter, Light Reading

jasanz 12/5/2012 | 4:05:18 AM
re: Tekelec Taqua Saga Drags On For the last few months I dont stop reading reports related to "how bad" or "how small" the softswitch market it. Cisco, Lucent, now Tekelec... Is this market just going to a be a race between Sonus (small challenger) and the incumbents (Ericsson, Alcatel)?
googol_byte 12/5/2012 | 4:05:16 AM
re: Tekelec Taqua Saga Drags On I disagree that this is a small market - it's just that the incumbents (RBOCs and IOCs) are taking a longer time to upgrade their infrastructure than earlier forecasts. But make no mistake about it, all voice WILL be IP eventually. The companies who continue to hang on to legacy TDM architectures and features will be left behind. Many of the incumbent suppliers are getting the wins now just because they have these ties to legacy features. In the longterm, this is not a defensible position.

I think this represents good news for those next gen suppliers who have shown good customer traction and have strong enough financials to continue.

We are only in the first inning of this game, folks. There's a lot of ball left to play...
Mark Sullivan 12/5/2012 | 4:05:15 AM
re: Tekelec Taqua Saga Drags On With regard to the Taqua switch, is the problem really that carriers are replacing legacy switches at a slower pace than expected, or is it that carriers will not deploy switches with TDM roots?
Lite Rock 12/5/2012 | 4:05:12 AM
re: Tekelec Taqua Saga Drags On Non rhetorically speaking, which vendors have a softswitch that is currently not TDM core?

This should be familiar ground for anyone that has been in Telcom for more than a couple years. The problem Tekelec got into is that they started as the next gen replacement with the Eagle STP and seemed to have forgotten what got them to where they were in the first place.

Clearly a lack of strategic leadership. IMO

I guess we'll see who puts the "Class" in Class Action... Crank up the Lawyers it's going to be a bumpy ride.

Thanks in advance for any info on my original question.

Cheers
alchemy 12/5/2012 | 4:05:12 AM
re: Tekelec Taqua Saga Drags On Mark Sullivan writes:
With regard to the Taqua switch, is the problem really that carriers are replacing legacy switches at a slower pace than expected, or is it that carriers will not deploy switches with TDM roots?

I think the problem is that Taqua went after the wrong market. The only substantial market for residential VoIP at the moment is cable. If you built a system targeting CLECs, you are sucking wind.
Lew Scent 12/5/2012 | 4:05:06 AM
re: Tekelec Taqua Saga Drags On There's light at the end of the tunnel for Tekelec. Todd Daniels just got canned in Houston and is available for his specialty "breathing life" into downtrodden companies!!
Larry, Monkey 12/5/2012 | 4:05:05 AM
re: Tekelec Taqua Saga Drags On When Fred Lax left Tekelec did he become an Ex-Lax?
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!
Eeep.
fgoldstein 12/5/2012 | 4:05:04 AM
re: Tekelec Taqua Saga Drags On The CLEC market is, to be sure, small -- the ILECs got a lot of help from Powell and Martin, so the CLECs are dying faster than they can buy switches. I am involved in moving some secondhand switches for new CLECs (or CLECs new to switching), though -- there are still niche markets for CLECs. That alone doesn't explain Taqua's problems.

The original design included analog line ports. It was a one-card switch with, IIRC, 40 analog ports and two DS1s. CLECs can't often use analog line ports. Rural ILECs might, but it wasn't the product they wanted, and the card didn't really fly. The final design was practical and flexible, but no cheaper than the competition, and no particular sex appeal.

Most CLECs with Taquas like them; they are stable, and handle the Class 5 and PRI markets well. They now have VoIP too though that came rather late compared to the competition. I don't know how well they sell into the RUS ILEC markets though; that's another nice niche, replacing old DMS-10s, DCOs and the like. Coppercom and Metaswitch are doing okay there.
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