Subex Offloads Its Problem ChildSubex Offloads Its Problem Child

After years of trying to justify its initial 2007 purchase price of $165 million, Subex Ltd. has agreed to sell its IP service fulfillment business to NEC Corp. (Tokyo: 6701)'s telecom software division, Netcracker Technology Corp. , for an undisclosed sum. (See Subex to Sell Fulfillment Business.)

Unfortunately for Subex, the sale price looks set to be a fraction of its initial outlay.

In an effort to diversify its Service Provider Information Technology (SPIT) portfolio, Subex acquired IP provisioning specialist Syndesis in 2007 for $165.4 million in cash. (See Syndesis Strikes $165M Takeover and Subex Closes Buy.)

But the acquisition honeymoon was short-lived, as the integration of Syndesis into Subex's operations and culture coincided with the 2008 market downturn that put many telecom back-office projects on hold. As a result, the gains Subex was hoping to make from an expanded product set never materialized. (See Subex Readies a Rebound.)

That disappointing performance resulted in the erosion of the value of the Syndesis business (renamed Subex Americas Inc.) and, following multiple write-downs, the "carrying value" on Subex's balance sheet at the close of the 2010-2011 financial year (ending March 31) was INR 1.25 billion (US$26 million).

According to Subex's annual report, Subex Americas generated revenues of INR 1.2 billion (US$25 million) and the net loss was just more than $1 million. However, Subex's CEO, in an interview with CNBC-TV18 in India suggested that the revenues were about 20 percent of the company's total revenues of INR 4.28 billion (US$89.3 million). That would put the fulfillment line's full fiscal-year sales to the end of March this year at about $18 million.

He also stated that after years of losses the business was almost breakeven and that the sale should not have much of an impact on Subex's balance sheet. That suggests the sale price is somewhere in the region of $26 million.

What's in it for NetCracker?
While Subex's decision to sell represents the end of a torrid few years for what was (in 2007) a promising business, the fulfillment unit, which comes with about 100 staff in multiple locations, looks a better fit for NetCracker, which has a much broader portfolio of OSS products into which the Subex line will fit.

NetCracker VP of Strategy Sanjay Mewada says the former Syndesis business will significantly broaden its multi-vendor activation capabilities -- "It will give us many more adapters that would have take us much longer to develop ourselves" -- and give NetCracker a number of new accounts, including Tier 1 engagements, that will expand its customer base. Mewada, who declined to discuss any financial details, cites AT&T Inc. (NYSE: T), BCE Inc. (Bell Canada) (NYSE/Toronto: BCE) and Telecom Italia (TIM) as examples of major additions to his company's customer list.

He also notes that the Subex fulfillment suite is "tried and tested with tier operators -- it's been through the ringer. ... It's bulletproof." He says it gives NetCracker an even more formidable lineup of OSS capabilities in a market where operators are looking for complete suites.

"Carriers no longer want multiple best-of-breed products that they then have to stitch together -- they want the full loaf of bread from one company," stated the OSS sector's master baker.

And with NEC's telecom software business now folded into NetCracker to create an OSS/BSS giant with revenues of $2.4 billion per year (according to NetCracker), the price tag will barely make a dent in the company's finances. (See NetCracker Flexes Its SPIT Muscle and SPIT Watch: CA, NEC Bulk Up.)

Now that the deal set to close within weeks, Subex can now start afresh, focusing again on its "core products" -- the Revenue Operations Center (ROC) revenue assurance tools and its managed services offering -- which the vendor believes can generate annual growth of more than 20 percent in the coming few years. (See Subex Wins Managed Services Deal in Africa and Subex Boasts Order Growth.)

The Indian company's investors seemed to appreciate the move, as Subex's share price ended the day up 3.84 percent at INR 48.70 on the Bombay Stock Exchange.

— Ray Le Maistre, International Managing Editor, Light Reading