Analysts say Sonus Networks Inc. (Nasdaq: SONS message board)s most recent
deal with Softbank subsidiary Japan Telecom Co. Ltd. could net the vendor as
much as $10 million in revenues over the next several months.
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The deal, announced Tuesday, specifies that Sonus will provide the VOIP
equipment that will power Japan Telecoms new voiceoverbroadband service. (See
Japan Telecom Picks Sonus.)
The carrier and the vendor have, over the past year, built a VOIP service
capable of handlng a million Japanese subscribers over broadband connections.
Analysts say the deal could mean an initial chunk of revenue amounting to
between $6 million and $7 million for Sonus. That figure is based on the number
of ports typically enabled by carriers in advance of the launch of new VOIP
service. (See Sonus: Were Big in Japan.)
Sonus will likely recognize revenue from the deal this quarter, U.S. Bancorp
Piper Jaffray analyst Troy Jensen says, due to the companys strict profit
recognition rules. (See C&W Splits, Ditches CEO.)
Equipment revenue generated from the deal in subsequent quarters will depend
much on the appeal of the new VOIP service, Jensen says. “I would say it’s
probably not a huge contract probably $10 million at most, depending on the
success rate and the subscriber count."
The real value of the Japan Telecom deal may materialize later on. “The
opportunity is that once you’re in you become the incumbent, and then you
leverage that into Class 4 and Class 5 replacement.” Replacement of those legacy
switches would yield far more revenue for Sonus than the current contract.
“It’s the footprint in a leading telecom company over in Japan that could be
meaningful down the road,” Jensen says.
Sonus is set to announce its fourthquarter 2005 earnings on March 13, the day
before the start of the Voice On the Net (VON) Coalition conference the VOIP
crowds biggest shindig.
Sonus says it is providing Japan Telecom with its GSX9000 softswitch, signaling
gateways and VOIP system management software. But a Sonus spokeswoman refused to
comment on the revenue implications of the Japan Telecom deal.
Investors have so far taken little notice of the deal. Sonus shares barely moved
on the news. The stock closed up $0.02 (0.41%) to $4.85 in regular trading on
Japan Telecom is a wholly owned subsidiary of Softbank, a larger Japanese
operator where Sonus has maintained incumbency status since 2003.