At first glance, the Veraz Networks (VRAZ)- Dialogic merger, announced at market close yesterday, appears to be a marriage of convenience, if not necessity: The deal came the same day Veraz reported a first-quarter loss of $5.2 million, compared to losses of $4.1 million in the year-ago period, and a 14 percent drop in revenue. Veraz executives acknowledged in an SEC filing that a merger is necessary now because it needs higher revenue and profits to “absorb costs of being a public company.” Veraz also said it needs a broader product line “to be more relevant and important to our customers.”
“We’ve been outspoken over the last year that being a public company with an average annual run rate of $80 million is a challenging proposition,” added Dawn Hogh, in a phone interview with VON/xchange, “especially when folks like Nortel are going bankrupt.”
Moving Up the Stack
Veraz grew up in the voice space, and has been seeking an entrée into data services; Dialogic has a strong legacy voice business as well, but has already moved into the mobile video sector. The combination, said Dialogic vice president of sales Kevin Cook, will “help us provide more of an end-to-end solution that will enable our service-provider customers to create profits from voice, video, and data services.”
In practical terms, that means the addition of Veraz gives Dialogic the switching infrastructure, security and bandwidth optimization to layer around the media gateways and media servers it has been acquiring and developing over the last few years. In competitive terms, it enables Dialogic, which has mainly sold media gateways and signaling technology, to potentially move up the stack and provide a more complete line of softswitches and application platforms.
And that’s good for service providers because it adds another option to a relatively limited mix of next-generation IP infrastructure vendors. Dialogic can now offer mobile operators, for example, not only service control and management software, but also the transport layer, backhaul, and so on.
With its emphasis on bandwidth optimization, Veraz has historically done 80 percent of its business outside the U.S., in emerging markets. But under current growth scenarios, capital-constrained operators in developed markets are also facing the same challenges: squeezing additional capacity out of existing resources today, and delivering rich mobile applications over more complex 4G networks tomorrow.
“We do see this as a new way to look at customers’ networks,” said Hogh. “People tend to focus on ‘This is a voice company,’ ‘This is a data company,’ or ‘a video company.’ At the end of the day it’s all sessions, and you need to understand what type of session it is, and still be able to do all the transport, control, and services, in a single infrastructure.”
