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Sonus Snaps Up Diameter Specialist

Sonus is adding important capabilities to its product portfolio with the planned $30 million acquisition of signaling platform specialist Performance Technologies. (See Sonus to Acquire Performance Technologies.)

The move will give Sonus Networks Inc. (Nasdaq: SONS), best known these days for its session border controller (SBC) technology, a ready-made Diameter routing platform. Diameter is the signaling protocol designated by the 3rd Generation Partnership Project (3GPP) for authentication, authorization, and accounting (AAA) on HSPA+, LTE and IMS networks and is also vital for the management and control of signaling messages on LTE networks, and so vital for enabling 4G roaming services. Importantly these days, Performance's SEGway Universal Diameter Router is available as a virtualized as well as physical product. (See Sonus Claims Virtual SBC Bragging Rights.)

The acquisition may give Sonus another string to its bow, but it won't move the needle on Sonus's financials too much. Performance generated $20.7 million in revenues during the first nine months of this year, during which time it recorded a net loss of $3.1 million. See this third-quarter financial report for more details. Sonus, meanwhile, is on course for annual revenues of about $270 million in 2013.

Obviously, Sonus is hoping it can increase that business. According to analyst forecast numbers cited by Sonus, the market for Diameter-enabled products will grow rapidly during the next four years to be worth around $1 billion in 2017. That, in turn, would mean that the market addressed by Sonus across its product portfolio would be $3 billion by that year.

Sonus, of course, isn't the only company chasing that business. Apart from the major mobile network equipment vendors such as Alcatel-Lucent, Ericsson AB, Huawei Technologies Co. Ltd., Nokia Solutions and Networks (NSN), and ZTE Corp., the Diameter routing market is already populated by Oracle Corp. (Nasdaq: ORCL), courtesy of its acquisitions of Tekelec and Acme Packet, and F5 Networks Inc. (Nasdaq: FFIV), which acquired its way into the sector in early 2012 with the purchase of Traffix Systems. (See Oracle Snaps Up Tekelec and F5 Sends LTE Signal With Acquisition.)

The deal values Performance's shares at $3.75 each, so it was no surprise to see its stock leap by more than 24% to $3.70 in pre-market trading Friday. Sonus also benefited from the news as its share price leaped by more than 12% in pre-market trading to $3.14 on the news.

Why this matters
Sonus is on a tear, growing its SBC market share, improving sales and putting noses out of joint with its virtual SBC launch.

Adding 4G signaling capabilities makes total sense for Sonus, as SBC attributes and Diameter routing are both important capabilities to have at network borders for any operator managing mobile data traffic.

There's no doubt that the market for Diameter routing is growing, but the big question for Sonus and its investors and partners will be how much of that market it can grab in the face of fierce competition from bigger and aggressive rivals.

And it also raises a question around the recently forged relationship with F5, which involve a combination of Sonus's SBC and F5's Diameter router. (See Sonus Partners With F5.)

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— Ray Le Maistre, Editor-in-Chief, Light Reading

DOShea 12/15/2013 | 10:55:13 PM
Oracle-Tekelec I've seen past research estimate that Oracle-Tekelec might have as much as 75% or more of this market, so even a beefed up Sonus still faces an uphill climb.
kaop 12/13/2013 | 3:04:16 PM
Re: makes sense.... Performance Technologies Inc isn't profitable but sales growth at over 50% yoy. Sonus got a steal for a company with real diameter routing solutions. 
[email protected] 12/13/2013 | 11:00:57 AM
makes sense.... But can Performance Tech give Sonus the Diameter clout it needs? The big vendors give their Diameter smarts away with big deals and F5 and Tekelec (Oracle) have been hammering this market for 2 years... it makes snese and it's hardly a risky acquisition but let's see if it pays off.  
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