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ADVA CEO: Overture Acquisition Adds to Our Open NFV Pitch

Ray Le Maistre
1/13/2016
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It's early Wednesday morning in Europe and while ADVA CEO Brian Protiva says he got a good night's sleep ahead of the announcement that his company has acquired Overture Networks Inc. for $35 million, he sounds like he's already done a full day's work and hit the nearest espresso machine hard.

But his excitement and 150-words-per-minute delivery are justified: He has just secured an acquisition that, while probably not moving the company's financial needle too far in terms of sales and earnings, propels ADVA Optical Networking (Frankfurt: ADV) into the hottest communications networking market of the current era -- virtualization. (See ADVA Adds NFV Smarts With $35M Overture Acquisition for the story of the acquisition and related financials.)

All well and good, but that also means he's pitching his roughly $450-million turnover company into the NFV super-league against the multi-billion-dollar heavyweights of the next-generation networking world -- the likes of Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. and Nokia Corp. (NYSE: NOK) (including Alcatel-Lucent).

Protiva understands the dynamics but believes ADVA can make an impact because he's married his company with a very suitable (and affordable) bedfellow.

"In recent years, we [ADVA] have been developing hardware and software while Overture has focused on software, so that is very complementary. We believe that, with Overture on board, we can now offer the most advanced NFV offering because we have hybrid hardware -- ADVA's NID [network interface device] with integrated x86 server technology -- a white box approach, management and orchestration capabilities and a virtual NID [the Connector] from Overture," says the CEO.

Open Talk
ADVA CEO Brian Protiva: No pie-in-the-sky on his menu.
ADVA CEO Brian Protiva: No pie-in-the-sky on his menu.

Key to making that attractive to potential customers, though, is the "open" nature of the technology, he notes. "We are one of few companies that is truly open -- we can run anyone's software on our hardware and our software will run on anyone's hardware and that's not pie-in-the-sky talk. There are others that talk about being open but that involves a bit of marketing … we have the revenues and customers and trials that show we are open," notes Protiva, who believes the NFV market is finally going to become meaningful in 2016 and then gain real momentum in 2017 and beyond.


For more NFV-related coverage and insights, check out our dedicated NFV content channel here on Light Reading.


That "true" open nature sets ADVA apart from key rivals, he claims. "Sure, there is a lot of competition from other companies that also talk about modular systems and open interfaces -- the likes of Alcatel-Lucent [Nokia], Ciena, Cisco, Huawei… they are all aggressively going after the same market. But our differentiator is that we are truly open, truly modular, and we are innovating quickly, including in pricing and licensing -- we are all about best of breed. Those larger companies want to provide everything end-to-end and so build hooks into their systems that can be limiting for operators. We don't try to lock our customers down. We offer a proposition that won't trap our customers and that's what they want -- customers want to mix and match and see interoperability and we are happy to work with anyone. We have ecosystem partnerships with companies such as Brocade and Juniper and multiple firewall vendors," he adds.

What about systems integration expertise? That's going to be very important to offer to operators undertaking the virtualization of their networks. (See NFV's Looming Battle: Systems Integration.)

"We now have about 1,700 staff and that includes a strong services team, with a lot of expertise that is coming over from Overture," notes the CEO, though he recognizes that there are many very large, global integrators out in the market. "We are very focused on working with partners and we have a number of major VARs [value added resellers] and OEMs [original equipment manufacturers] that we work through, so we can be a part of other companies' offerings. IBM is a VAR partner, for example."

Will Protiva be quite so bullish once the post-acquisition honeymoon is over? Of course, but then Light Reading and everyone else will be looking to see if this new combination and the "open" story that the CEO is pitching has turned into customer traction and dollars. That, after all, is the ultimate test.

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

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brooks7
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brooks7,
User Rank: Light Sabre
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
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Sterling Perrin,
User Rank: Light Sabre
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
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patricknmoore,
User Rank: Lightning
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
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brooks7,
User Rank: Light Sabre
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
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Sterling Perrin,
User Rank: Light Sabre
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
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50%
[email protected],
User Rank: Blogger
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
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Iluzun,
User Rank: Lightning
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
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Sterling Perrin,
User Rank: Light Sabre
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
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cnwedit,
User Rank: Light Beer
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
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[email protected],
User Rank: Blogger
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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