Sonus Misses in Q3

Just like months ago, accounting questions and procedural mysteries upstaged any product and technology discussions during the Sonus Networks Inc. (Nasdaq: SONS) earnings call on Tuesday evening. (See Sonus Reports Q3 .)

The softswitch and IMS gear maker reported a net loss of $2.7 million, or a penny a share, on revenues of $45.7 million for its third fiscal quarter of 2005. That compares to the reported profit of $10.3 million, 4 cents a share, on revenues of $46.8 million for the company's year-ago quarter.

When compared to analysts' expectations, Sonus missed its earnings number and its revenue number. Analysts surveyed by First Call were expecting Sonus to report a profit of $0.01 a share on revenues of $49 million.

Sonus shares were up $0.14 (2.85%) to $5.06 in normal trading on Tuesday. But shortly after the company reported its quarterly loss -- and the conference call that explained the numbers -- its shares fell $0.66 (13.04%) to $4.40 in after-hours trading.

The missed numbers, Sonus claims, weren't a matter of botched sales. The company says it lowered its revenues by $4.7 million and its earnings by 2 cents a share because it renegotiated "certain customers' bundled maintenance and support arrangements" during the quarter.

So thanks to some mysterious customer contract doings, nearly $5 million in revenues that could have been reported in the third quarter as product revenues will now appear during some future quarter as service revenues.

"We have historically called out any unusual items in our results and we wanted to be sure and call this one out as well," says the vendor's jet-setting CEO, Hassan Ahmed. (See Sonus Chief: Come Fly With Me! )

Sonus's financial scandal days may be over, but now the company is taking on the likes of Lucent Technologies Inc. (NYSE: LU) and others in the softswitch market and in new carrier IMS deployments. When asked how he felt about Lucent's many wins in the North American IMS race, Ahmed took a step back for a broad comment about the technology's generalities. (See Cingular Picks Lucent for IMS, SBC Jumps on Lucent IMS Bandwagon, Lucent Lands BellSouth IMS Deal, and Lucent in the Lead for Verizon IMS?.)

"IMS is really an open architecture and that allows an operator to leverage multivendor solutions," he says. "There's been a lot of talk about IMS and it's really good because it validates the direction we've been taking."

Though Ahmed didn't say so, Sonus may not have as much to worry about by missing RBOC business as some think, according to one analyst watching the company.

In his earnings preview note, Eric Buck at Janco Partners Inc. writes that "no RBOC, other than Qwest, has accounted for more than 10% of Sonus’ revenues in any of the last five quarters.

"Should the remaining RBOCs go elsewhere... it is not likely to be detrimental to Sonus' current revenue stream." Buck adds that Sonus is winning deals with the carriers "that are really driving the market" such as new voice entrants like EarthLink Inc. and AOL Inc.. (See EarthLink Picks Sonus and Sonus, AOL Team On IMS .)

Even with new VOIP wins, not all are convinced that Sonus is quite the trailblazer it used to be. "We further believe Sonus remains overly dependent on legacy customers, applications such as trunking, and a GSX9000 platform which is now seven years old," writes Merriman Curhan Ford & Co. analyst Tim Savageaux, in an October 7 note to clients.

— Phil Harvey, News Editor, Light Reading

alchemy 12/5/2012 | 2:54:39 AM
re: Sonus Misses in Q3 materialgirl writes:

Frankly, I think SONS will do fine, maybe not take over the world, but fine, once this IMS stuff settles down enough to really get deployed. I do not think LU has what they imply.

I sort of agree with all this. I think LU is announcing stable shipping product in IMS deals when the state of the art in IMS is fragile lab trials. SONS gear works as well as any other solution.

The problem with SONS is that their business is, by nature, very lumpy. They have good quarters. They have bad quarters. The long term moving average is good but they continually get hammered by Wall Street where analysists are used to dealing with companies that show steady revenues with sustained growth quarter to quarter. Unless SONS can diverify their customer base and product lines so their financials can look like what the trolls on Wall Street expect, they're going to keep getting hammered whenever they have a down quarter. For a US company, the best thing to do with this kind of business is merge it into a much larger parent company where most of the short-term lumpy-ness can be buried by activities of other divisions.
materialgirl 12/5/2012 | 2:54:39 AM
re: Sonus Misses in Q3 While not guiltless, it seems as though SONS has been caught up in the general industry transition turmoil. When they made their SIP and H.323 based packet voice boxes way back when, that was what most people saw as VoIP. Now, out of seemingly nowhere, IMS has roared in to capture the service provider's imaginations.

So, SONS has changed their tune fairly rapidly to become IMS compatible. That change of events was not their fault. Also note that Cingular continues to buy their boxes (a "10% customer) while LU claims to have all these IMS wins at the RBOCs but NO REVENUES TO SHOW FOR IT FOR A YEAR.

Frankly, I believe SONS when they say IMS networks will be multi vendor more than I do LU who says they have all these contracts locked down. I think they threw LU a bone.

That said, most "real" revenues for SONS are to greenfield applications rather than to networks in transition. That probably says more about the state of the market and the maturity of IMS than it does about the SONS gear. Even when LU management crowed about their wins, they noted how critical their integration capabilities were in the deals. These same growing pains are probably what is causing little SONS to delay revenues. The standards are just not mature, and when this stuff goes in, people still say "but I need"... Over time, this should settle down.

Frankly, I think SONS will do fine, maybe not take over the world, but fine, once this IMS stuff settles down enough to really get deployed. I do not think LU has what they imply.
Kevin Mitchell 12/5/2012 | 2:54:37 AM
re: Sonus Misses in Q3 Geez, Sonus can't report numbers without an asterisk or caveat of why they are as they are reported. It will be refreshing to hear the plain numbers reported without the accompanying "yeah, but..."
baba_curley_nanda 12/5/2012 | 2:54:30 AM
re: Sonus Misses in Q3 SONS invented IMS- dude- check the Frost and Sullivan award for SONS in innovating and basically creating the IMS standard- try to read up on your facts before implying that LU is the innovator- they are the one that very recently jumped on the IMS bandwagon becasue nobody wants to handle the scope of converting the RBOCS wireless networks database mgmt and wireline into one big database- yuk-only LU has the manpower to do that- SONS does not- SONS wants to sell its class5s and tandem class4s to wireless- there is no class5 in wireless i.e. Cingular for 2 years- and note LU IMS Contracts do not get paid for til early 2007 or even get deployed...vaporware.
baba_curley_nanda 12/5/2012 | 2:54:30 AM
re: Sonus Misses in Q3 THis is the stupidest post ever! SONS invented IMS not LU- LU jumped on the IMS bandwagon NOT SONS-in fact SONS has always used SIP, Telica which LU bought had to purchase the SIP stack from Data Connection Limited in the UK- a SW stack vendor so LU main softswitch and MG co. used MGCP not SIP!
Insane that people are now believing LRs LU bandwagon jumping- how about LR putting some money that It is NOT LU but SONS that lands the softswitches triple play landline deals that are worth far more money than hokey trials that the cingular CEO has said "nobody really know about IMS yet- its way down the road- it enables wireless and wireline subscriber mgmt to be tied together"- the end game of IMS is to allow open SIP APIS allow wireless and wireline users to download APPS over open SIP APIS to run GOOGLE Talk IM AIM with voice/video etc. not just to tie wireless and wireling-Frost and Sullivan gave SONS the award for essentially pioneering all of the work and presenting it to be standardized to the industry- SONS is not afraid to compete- When HA "stepped back to take a broader view" he was also stepping back from some of the biggest BS Spin I have ever seen put out by LU and greased and spun more by LR exclusively- why did LU go down every time after they announce yet another ALLEGED IMS deal and no dollars are attached? SIMPLE-LU does not even have all the SW-its still being developed- LU has not a single major class 5 softswitch deployment- SONS is based on legacy equipment and the GSX is 7 years old- NOT- it was upgraded to handle higher OC3 trunks a year ago and the GSX-4000 just came out and is selling like hotcake. You guys at LR and poster here are totally clueless- you have spun every single deal incorrectly-you called Marconi the winner at BT- SONS the winner at BLS- then LU on a BS PR- it takes a year to test a class5- SONS is the winner- who is sponsor of the BLS classic golf tournament- who has SBC/ATT- who had VZ as a 10% customer in yesterdays CC and who has trounced NT out of the VOIP softswitch business- SONS not LU!! Dagnabbit- stop the lies- SONS is the best of breed bar none and that is not bias- its simply the truth from a techie who has worked in the field for 20 years!
optical_man 12/5/2012 | 2:54:28 AM
re: Sonus Misses in Q3 babba booey writes:
"SONS invented IMS- dude- check the Frost and Sullivan "

Visicalc invented spreadsheets, MSFT crushed them with an imitation.

Netscape (for all intents and purposes) invented the publically user friendly Internet Browser. MSFT crushed them.

IBM invented (for mass production purposes) the PC. Dell crushed them.

So your point about inventing IMS (which I find to be an interesting claim) is what...?
Is AlGore on the Board of SONS?
LightGaugeGuitarString 12/5/2012 | 2:54:27 AM
re: Sonus Misses in Q3 Has anyone read the Sonus press release of the Frost & Sullivan award? Funniest spin I ever heard...

GÇŁTo become fully IMS-compliant, Sonus customers will need only to upgrade the software on their existing Sonus architecture. No other vendor comes as close to IMS-compliance.GÇĄ

So... except for the lack of IMS software, Sonus is reeeaaally close to being fully IMS compliant

yuk yuk yuk...

DCITDave 12/5/2012 | 2:54:27 AM
re: Sonus Misses in Q3 re: " check the Frost and Sullivan award"

Oh, well. That settles it. I guess they did invent IMS.

alchemy 12/5/2012 | 2:54:26 AM
re: Sonus Misses in Q3 baba_curley_nanda says:
SONS invented IMS- dude-

IMS dates back to late-1998 with the first 3GPP specs being release 99.

At the time, Sonus was on their B round of VC funding getting vanilla VoIP working. They didn't participate in 3GPP at all in those days. Their application was class 4 trunking, not subscriber endpoint VoIP.

If they invented it, they have a patent on it. Please cite the specific IMS patents filed by SONS that claim this invention. I don't think you'll find any patents - dude -
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