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DASAN, Zhone Merge for Ultra-Broadband Battle

Ray Le Maistre
9/12/2016
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In an effort to compete with the broadband access equipment market's big hitters, US vendor Zhone Technologies and South Korea's DASAN Networks have merged to form an international company that boasts hundreds of network operator and enterprise customers, mainly in North America, South-East Asia and the Middle East.

Both companies realized they needed to act to become more competitive and win market share in their target markets of broadband access, mobile backhaul and Ethernet switching and so agreed to merge in a stock transaction that creates a company with more than 800 customers, 700 staff and anticipated annual revenues of more than $250 million.

To seal the deal, Zhone Technologies Inc. (Nasdaq: ZHNE) issued 47.5 million shares (valued at about $55 million) to DASAN Zhone Solutions Inc. , giving the South Korean company a 58% holding in the combined company, which is now called DASAN Zhone Solutions Inc. (See DASAN Networks, Zhone Complete Merger.)

The newly branded vendor, which begins trading on the NASDAQ exchange Monday with the ticker DZSI, has been formed at a time when the fixed broadband sector is experiencing something of a renaissance, spurred on by the bandwidth demands of cloud and video services and the anticipated pressure that 5G will put on access networks. (See Beware the Bottleneck! Why 5G Is Driving an Ultra-Broadband Boom and Adtran CEO: Broadband Boom Is Back.)


For more fixed broadband market coverage and insights, check out our dedicated Gigabit content channel here on Light Reading.


But the new entity has its work cut out to make the merger a success, as while DASAN and Zhone have industry pedigree -- both companies have been developing and selling broadband network gear since the 1990s -- they are minnows in a market dominated by the likes of Adtran, Calix, Huawei, Nokia and ZTE.

In 2015, Zhone generated revenues of about $100 million and reported a small operating loss, while DASAN Networks generated revenues of around $140 million and reported a small operating profit. And while the new company has hundreds of customers with a broad geographic spread, its traction with major network operators is limited to DASAN's relationships with the likes of KT, SK Broadband and LG U-plus in its home market of South Korea, plus business with SoftBank, KDDI and NTT in Japan, TOT in Thailand, PCCW in Hong Kong and BSNL in India. (See KT Picks EPON Gear.)

Zhone's customer list includes a number of competitive operators in the US (Birch Communications, Consolidated Communications, Interbel), Telus, SaskTel and Allstream (Zayo) in Canada, Axtel in Mexico and a handful of minor operators in Europe. Where it has had some significant impact is in the Middle East, where it has won business with Saudi Telecom, Etisalat, du and Mobily, among others. (See SaskTel Deploys Zhone MXK for Triple Play, Mobily Does FTTH With Zhone and Etisalat Selects Zhone.)

The new company's product portfolio includes a range of broadband access networking gear for GPON, EPON, XG-PON, G.fast and xDSL networks, access and aggregation routers for mobile backhaul, Ethernet switches and passive optical LAN gear for enterprise customers and some WiFi access products. The new company is also developing SDN capabilities for its access portfolio. (See DASAN Unveils G.fast Gear.)

In an investor slide deck from earlier this year, Zhone stated that the merged company would be targeting a global market worth $48 billion, with broadband access and mobile backhaul each accounting for $10 billion, enterprise solutions another $20 billion and SDN about $8 billion. Based on those estimates, DASAN Zhone holds a market share of about 0.5%: The co-CEOs, Yung Kim and James Norrod, will need to devise an extraordinary company strategy to even get to a 1% share of its total target market in the next couple of years, given the firepower of its main rivals. (See Is There No Stopping Huawei?, Adtran Reports Q2 Gains , Calix Reports Q4, Nokia Reports Q2 and ZTE Gains Ground on Ericsson, Nokia in H1.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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Ray@LR
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[email protected],
User Rank: Blogger
9/13/2016 | 1:28:09 PM
Unfortunate start - delisting notice and a 17% haircut
The ink is still dry on the new cmpany name and it has already received a delisting notice and seen its share price take a 17% haircut.

Rough start...

DASAN Zhone Announces Receipt of Delisting Determination Letter from Nasdaq

http://finance.yahoo.com/news/dasan-zhone-announces-receipt-delisting-130301387.html

 
Ray@LR
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[email protected],
User Rank: Blogger
9/12/2016 | 1:20:55 PM
Re: Searching for the USP
Yes but they have plenty of experience and expertise -- though I notice they are now pushing SDN as an area of focus and I'm not sure this is in its Comfort Zhone (see what I did there?).

Will be inteersting to see how the new cmopany pitches itself during the Broadband World Forum next month.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
9/12/2016 | 11:24:12 AM
Re: Searching for the USP
The newly merged company is still quite small compared with the incumbents. They're going to have to specialize to thrive.
Ray@LR
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[email protected],
User Rank: Blogger
9/12/2016 | 11:20:01 AM
Searching for the USP
DASAN and Zhone have clearly been able to win business in teh past, with DASAN doing well in its domestic market and in other S-East Asia markets in particular. 

And interestingly, Zhone has built itself a franchise in the Middle East.

 

But how can these cmpanies, now merged as a single company, offer something that is a viable alternative to the major vendors that are pitching their broadband access gear as part of a package with professional services, 4G-5G radio access gear and cloud/virtualization suites?
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