NEC Shells Out $300M for NetCracker

In an effort to fulfill its international aspirations, Japanese vendor NEC Corp. (Tokyo: 6701) has agreed to buy OSS vendor Netcracker Technology Corp. for a whopping $300 million, the two companies announced Friday. (See NEC Buys NetCracker.)

The move is part of NEC's stated plan to broaden its reach beyond its key home market and become a major key supplier of hardware and software to telecom operators worldwide: The company has set itself an aggressive target of generating ¥200 billion ($1.88 billion) in revenues from international sales during the next five years.

The Japanese firm says OSS will "represent a key element" in that international growth strategy, and that NetCracker will operate as an independent business unit and "become the centerpiece of NEC's communications service provider software business."

NetCracker in a nutshell
NetCracker is a supplier of OSS (operations support systems) products to carriers and cable operators, with capabilities in the inventory management, data integrity, order management, service provisioning, and service activation categories. (See Who Makes What: OSS .)

It has also developed a service creation story around its support for IMS (IP Multimedia Subsystem) and SDP (service delivery platform) deployments, areas of increasing importance for OSS vendors. (See Telcos Enter the Factory Age, OSS Firms Jump on IMS, and NetCracker Unveils OSS for IMS, SDP .)

The Waltham, Mass.-based privately held company, which has about 1,000 employees globally, is believed to have generated revenues of around $94 million in 2007, and counts the likes of Orange (NYSE: FTE), Mobile TeleSystems OJSC (MTS) (NYSE: MBT), Telus Corp. (NYSE: TU; Toronto: T), UPC Broadband , and Telecom New Zealand Ltd. (NYSE: NZT; New Zealand: TEL) among its customers. (See TNZ Uses NetCracker's OSS, MTS Deploys NetCracker, NetCracker Touts FT Deal, Telus Deploys NetCracker, and UPC Picks NetCracker's OSS.)

While NetCracker names some major IT and integration players, such as HP Inc. (NYSE: HPQ) and IBM Corp. (NYSE: IBM) as its partners, its main rivals include some of the heavyweights of the OSS world, particularly Amdocs Ltd. (NYSE: DOX), Oracle Corp. (Nasdaq: ORCL), and Telcordia Technologies Inc.

Growing importance of OSS
NEC's move is yet another indication of the growing importance of telecom software capabilities to major vendors and their carrier customers. (See EuroBites: OSS Matters.)

"This suggests what a strong incentive there is for major vendors to have a presence in the telecom software market," says Graham Finnie, chief analyst at Heavy Reading. (See Vendor Giants Go Soft.)

"Several studies we've done have shown that legacy OSS systems are a major barrier to the deployment of next-generation networks [NGNs], and carrier OSS transformation projects are vital to the introduction of new technologies and services. Having new-generation OSS capabilities in-house will give NEC a more credible story with carriers looking to migrate to cutting edge software and hardware systems," adds Finnie.

His colleague, Heavy Reading's telecom software specialist Caroline Chappell, isn't surprised to see a large equipment player snap up the OSS firm. She says established telecom software firms are the targets for major vendors "as everyone realizes they need an end-to-end, SOA-based OSS/BSS transformation solution across fulfillment, billing and assurance, with fulfillment [activation and provisioning] and order management being the real hotspot in the market at the moment."

Chappell also notes that NetCracker isn't the only fulfillment specialist to have been snapped up of late, as both Axiom Systems Inc. and JacobsRimell Ltd. have been acquired recently. (See Comptel Snaps Up Axiom and Amdocs Provisions $45M for JacobsRimell.)

Strengthening NEC's international appeal
In addition to the planned acquisition of NetCracker, which is expected to close in September, NEC has also bolstered its international presence by striking a 4G mobile systems joint venture agreement with Alcatel-Lucent (NYSE: ALU), ramping up its IMS (IP Multimedia Subsystem) marketing, particularly in relation to IPTV and VOIP, and planning to build a presence in the European DSL market. The vendor is also one of the major players in the growing submarine network construction sector. (See AlcaLu, NEC Team for 4G, NEC Pins Its IPTV Hopes on IMS, NEC's Euro Hopes, NEC Wins Submarine, and Carriers Plan $500M Transpacific Link.)

According to media reports from Japan, NEC may open its wallet again to further boost its international presence. According to a report by Reuters, NEC's president Kaoru Yano told reporters at a press conference: "To speed up growth, organic evolution is not enough, and M&As [mergers and acquisitions] are necessary. We will continue to consider M&As to gain economies of scale."

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:37:40 PM
re: NEC Shells Out $300M for NetCracker $300 million -- seems like a lot but then I guess it's 3.3 times annual revenue, if the 2007 sales number of around $90 million is accurate.

And NetCracker says it's profitable too.

So who's next? Is there anyone left worth buying?

Would a major vendor buy a company like Amdocs, for example? Mind you, its market cap is $6.6 billion just now... but if you're going to get into telecom software, that would give you the motherload.

Sign In