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brooks7
brooks7
1/15/2016 | 12:25:03 PM
Re: NFV M&A ROI
 

So, a Virtual Function plugs into a PC with an Ethernet jack (that is essentially what a server that is right?).  The Hypervisor virtualizes the Ethernet Interface.  So, you are going to put Overture on a PC that you run at a customer premise for what reason?  So, that there is software that runs on the end customers server?

So, I understand the point that you are trying to make.  What I am pointing out that once you virtualize and combine them the whole thing makes no sense.  You can just talk to the hypervisor directly and get the Ethernet Info.  Of course end customers are not going to let you have shell access to boxes on their premise.  Which is my point.  Once you have an Ethernet jack - what the heck are you doing nowadays other than handing it to a firewall at the edge of the premise for security reasons.

And you miss my point about the long tail business.  If you have more than $35M in legacy revenue, the legacy business would likely be worth more than $35M all on its own from the NPV of the cash flow.  Which is why I said that the value pegged on the NFV business was approximately 0.  ADVA would not have made the purchase, but they might sell off the legacy business and end up with an actual cost of the business of 0.

seven
Sterling Perrin
Sterling Perrin
1/15/2016 | 9:28:30 AM
Re: NFV M&A ROI
Seven,

It looks like the functions you're talking about are the layer 3 applications that get virtualized? -- which is not what ADVA/Overture or other Carrier Ethernet companies would focus on. They would need to adapt layer 2 for VNFs and build out the management/orchestration. I don't think what the Carrier Ethernet companies are doing is easy to replicate, as it's all very new and mostly in trials/PoCs at this point.

On your point about legacy business, agreed, there is a long tail of revenue from legacy business. But, if that's all Overture had at this point, ADVA wouldn't have bought them. 

Sterling
patricknmoore
patricknmoore
1/14/2016 | 4:08:26 PM
Re: NFV M&A ROI
The real value in NFV will come when people are not creating virtual versions of their boxes, but instead decoupling of the the functions of that box and offering VNFs with none of the excess overhead that is still there from the hardware days by just making a box a VM. Many vendors, not just in the CPE space, have VMs of their legacy devices that I don't consider to be true VNFs. There is a virtualized device, and then there is a Virtualized Network Function. Really not the same thing...in my opinion.

That being said, nobody is really doing that yet...with a few exceptions...so your points are still very valid in today's world.
brooks7
brooks7
1/14/2016 | 10:19:36 AM
Re: NFV M&A ROI
Here is the thing...long tail legacy businesses generate cash.  That in itself has value.  The future of the business was NFV, but NFV probably generated 10% or less of all those revenues.  CTDI has made a very nice little business in milking old things.

A price of $35M says to me that the value of the NFV stuff was pretty close to 0.  I want to point out once again that the kind of CPE that you are all talking about are really easy to replicate if you go to say the Barracuda website.  Essentially every IT company (and yes I am aware that this is a slight stretch) has made all their products available under a VM.  Check out:

https://www.barracuda.com/solutions/virtual

https://www.barracuda.com/programs/aws

https://www.barracuda.com/programs/azure

https://www.barracuda.com/programs/vcloud

I have never worked at Barracuda and they used to be the kings of pushing box stacking.

seven

 
Sterling Perrin
Sterling Perrin
1/14/2016 | 10:00:13 AM
Re: NFV M&A ROI
Ray, agreed. Overture was a leading supplier in legacy/dying segments of Ethernet over copper and Ethernet over TDM - a dubious title to own, "copper" and "TDM." ADVA was already strong in Ethernet over fiber, which is the main segment of wireline Ethernet access. This is all about NFV potential, but it's potential because these products are all new to Overture.

Sterling
Ray@LR
[email protected]
1/14/2016 | 4:09:43 AM
Re: NFV M&A ROI
Let's see what details come out on Feb 25 re Overture current run rate.

But there is no doubt that this deal is all about potential, not existing, business. If Overture had not developed its NFV capabilities it would have been dead in the water with no-one buying it, right? 
Iluzun
Iluzun
1/13/2016 | 3:03:31 PM
Re: NFV M&A ROI
"...well below 1x revenue for Overture." Ouch! Isn't that called capitulation? Hard to look @ as a positive, except 4 Adva. What will Nolle say..?
Sterling Perrin
Sterling Perrin
1/13/2016 | 10:52:46 AM
Re: NFV M&A ROI
Carol, the low price got my attention as well - I believe the price is well below 1x revenue for Overture. However, Overture generates alot of its revenue from legacy Ethernet over TDM and Etherent over copper products that may be of little or no interest to ADVA. The entire value of Overture may have been wrapped up in the NFV products and future assessment.

Sterling
cnwedit
cnwedit
1/13/2016 | 10:19:35 AM
Re: NFV M&A ROI
The original price tag seems like a bargain to me, as Overture is well-positioned in the vCPE space. But you are right, Ray, there is an opex hit as well.

This seems to signal ADVA's intent not to be just an optical company but to engage more deeply with its customers, so while it's a risk, the bigger risk seems to be doing nothing and just consigning the company to become more commodity.
Ray@LR
[email protected]
1/13/2016 | 9:53:19 AM
NFV M&A ROI
The price of $35 million isn't enormous but taking on nearly 180 staff will add to the opex line and niovestors will want to see a return on this investment without a hit on the margins which have improved sigbnificantly during 2015.

That said, this is the kind of move that mid-sized vendors have to take now if they're not going to disappear and become slowly irrelevant, so all credit to them...


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