Sonus Networks: Large Opportunities in VoIP and Enterpise Market

October 22, 2012

Sonus Networks (NASDAQ: SONS, $1.83) was presented at our recent idea forum in Los Angeles as a Buy.   The company has the industry-leading expertise in VoIP and very strong relationships with carriers, which positions it very well to gain from the telecom operators’ ongoing transition to all IP networks.  The company’s recent acquisition of Netwok Equipment Technologies has greatly strengthened its SBC (session border controller) portfolio.  SBCs represent an important link enabling large enterprises to consolidate their data and voice networks and get the benefits of true unified communications.  Sonus has been quickly gaining share in SBCs and is well on its way to successfully implement the transition from a legacy access/trunking business to becoming an SBC-focused company.  The valuation is depressed currently on weak growth and profitability historically, but the outlook will change as SBCs make a more meaningful contribution to sales.   Based on peer multiples and top-line growth accelerating to 20% annually, the upside is 100%+.  SONS’ business has strong operating leverage.   The company’s technology and its healthy balance sheet make Sonus an attractive target for a larger competitor.

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