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Optical/IP

Sycamore Sings With Eastern Buy

Raise your hand if you thought Sycamore Networks Inc. (Nasdaq: SCMR) would be a buyer in the current wave of consolidation. Keep your hand up if you thought they'd buy something from the music industry.

Anyone?

Sycamore today announced a $92.5 million plan to acquire the Allen Organ Co., an honest-to-goodness builder of church organs, based in Macungie, Pa.

It's not all that weird: The real target is Eastern Research Inc. , a maker of multiservice crossconnects and access gateways.

Allen Organ plans to spin off the organ business and its other subsidiaries -- an audio engineering firm and a contract manufacturer -- retaining only its majority share in Eastern. Sycamore would then acquire Allen, effectively buying Eastern without the keys, pedals, and pipes.

The purchase price will be about $92.5 million, consisting of 17.8 million Sycamore shares and $8 million in cash. Some of the stock will go to the minority shareholders of Eastern.

The acquisition therefore does little to dent Sycamore's cash hoard, tallied at $966 million as of January.

If anything, the acquisition could help boost revenues. Sycamore managed to beat expectations with its January earnings, but its book-to-bill ratio was less than 1.0, a sign that revenues were beginning to turn south. (See Sycamore Shares Slip on Q2 Profit.)

"We believe the backlog at Sycamore has now been drawn quite thin and without a significant new customer win, which we think is unlikely, we see a good chance that Sycamore could fall short of earnings estimates within the next two quarters," wrote analyst Michael Genovese of Citigroup , shortly after Sycamore announced earnings in February.

For its second quarter, which ended Jan. 28, Sycamore reported GAAP profits of $5 million, or 2 cents per share, on revenues of $20.8 million. For the quarter ending in April, analysts polled by Reuters are expecting net income of $5.2 million, or 2 cents per share, on revenues of $20.5 million.

In after-hours trading, Sycamore shares were up 17 cents (3.9%) at $4.57.

— Craig Matsumoto, Senior Editor, Light Reading

Pete Baldwin 12/5/2012 | 3:57:34 AM
re: Sycamore Sings With Eastern Buy Extra items from the conference call:

* Eastern's 2005 revenues: $62.5 M, with gross margin 62%

* 250 employees expected to join Sycamore, most of them in Moorestown, NJ

* Why use stock instead of all that cash? In order to qualify the transaction as a tax-free reorganization

* Products are considered complementary: Eastern sits mostly in the access network, Sycamore at the core
Pete Baldwin 12/5/2012 | 3:57:34 AM
re: Sycamore Sings With Eastern Buy The deal will certainly bolster revenues, but I don't know... I wouldn't call it game-changing. And Sycamore still hasn't done anything with all that cash.

Anybody got better suggestions for them?
sigint 12/5/2012 | 3:57:31 AM
re: Sycamore Sings With Eastern Buy
* Products are considered complementary: Eastern sits mostly in the access network, Sycamore at the core
________________________________________

A bit surprising. Tejas Networks, the Indian Optical startup intitially funded by Sycamore (and with Desh as Chairman), is in the access marekt too. In a sense, Sycamore had access gear already. And, Tejas is profitable already (or so the grapevine says).
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