Softswitch vendor aims to raise $115M by listing on Nasdaq, with ECI preparing to sell part or all of its 41% stake

October 23, 2006

3 Min Read
Veraz Files for $115M IPO

VOIP equipment vendor Veraz Networks Inc. (Nasdaq: VRAZ) is aiming to list on Nasdaq and raise up to $115 million, according to an S-1 form filed with the Securities and Exchange Commission (SEC) late last week.

The company, which intends to trade with the ticker VRAZ, has been building its softswitch and media gateway user base since early 2003, and has developed a good reputation among carriers and other VOIP vendors for its Class 4 and Class 5 replacement switches. (See ECI, NexVerse Become Veraz, Veraz Has the Hot VOIP Hand, Veraz and Others Win Indian Contract, Reliance Relies on Veraz, Veraz Wins Telecom NZ Deal, Veraz Boasts Stellar 2005, and Belagcom Picks Veraz.)

The company doesn't only sell VOIP gear, though, as it has a legacy digital compression, or digital circuit multiplication equipment (DCME), business that has given it stability while building its VOIP gear business. Veraz says it has more than 400 customers for its DCME products and more than 45 for its VOIP systems.

The company's S-1 shows that Veraz's 2005 revenues of $76.2 million comprised $41.7 million from DCME sales, $24.5 million (about one third of the total) from VOIP equipment, and $10 million from services.

But its VOIP equipment sales are growing fast. In the first six months of 2006, Veraz reports total revenues of $44.7 million, of which $20.4 million, nearly 46 percent, came from VOIP equipment sales, up from $8.5 million in the same period a year earlier.

Now its owners -- ECI Telecom Ltd. , the largest single shareholder with a 40.9 percent stake, and a group of venture capital firms, including Norwest Venture Partners and Battery Ventures -- have decided to take the firm public. ECI says it will sell "an undetermined number of shares of Veraz common stock" as part of the offering, which means it could puts its entire shareholding up for sale.

Those investors will have taken heart from the recent IPO of another VOIP systems firm, session border controller vendor Acme Packet Inc. (Nasdaq: APKT). (See IPO News: Acme Soars, Neuf Preps .)

But there's a big difference between the two. Acme had built itself a commanding position in the session border controller (SBC) market and was already returning very healthy and growing profits when its shares hit the market earlier this month.

Veraz, meanwhile, competes with some of the industry's biggest hitters, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , Lucent Technologies Inc. (NYSE: LU), Nortel Networks Ltd. , and Siemens Communications Group , as well as established specialists such as Sonus Networks Inc. (Nasdaq: SONS).

And Veraz has yet to reach breakeven. In 2005 the company reported a net loss of $14.3 million, while its loss for the first half of 2006 was $9.7 million, more than 21 percent of revenues.

— Ray Le Maistre, International News Editor, Light Reading

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