Sonus rides high as telecom provider alternative

Sonus Networks, a communications equipment start-up whose gear allows voice services to be delivered over Internet-based networks, is quietly making a name for itself amid a field dominated by big competitors.

Only three months after going public, Sonus claims a market valuation of nearly $12 billion and has already announced a 3-for-1 stock split.

The numbers underscore the success Sonus has had despite competing against the likes of Nortel Networks, Lucent Technologies, Cisco Systems and other prominent networking names, feeding the notion that small networking companies can carve out lucrative niches for themselves.

"It's a daunting task to go up against companies such as Cisco, Tellabs, Siemens, and Nortel and Lucent and do it well," said Grier Hansen, an optical and carrier networks analyst at market watcher Current Analysis.

Sonus' customer list includes large communications carriers such as Williams Communications, Global Crossing and Level 3 Communications, in addition to Broadband Office and Intermedia Communications. Last week, Time Warner Telecom also became a customer.

As has been the recent trend among secretive networking start-ups, Sonus has laid relatively low.

"At this point Sonus is letting their customer wins speak for themselves," Hansen said. "When people announce their intentions to the public, you put a target on yourself."

Pacific Crest Securities initiated coverage on Sonus last week with a "buy" rating, saying the company holds a "first-mover advantage" in the niche it's focused on.

Sonus is targeting the markets long dominated by Lucent and Nortel. Those equipment giants are the two primary providers of switching gear for older circuit-based voice networks, such as those owned by AT&T and the Baby Bell local phone companies.

"My job is to go in and take a piece of (Nortel's and Lucent's) business. I have to show that it's a more cost-effective way of doing business," said Gary Rogers, vice president of worldwide sales and marketing for Sonus Networks. "We enable (the carriers) to build out one network."

Analysts say Sonus hopes to be to newer networks what Lucent and Nortel were for older ones: a requirement. "They definitely are trying to become the Lucent and Nortel for the (next-generation) networks," Hansen said.

Sonus makes hardware and software that link voice and Internet packet networks. The company's primary product is its GSX 9000 switch, and the PSX 6000 software, or "softswitch," which provides the brains for the hardware.

Many newer communications carriers are quickly adopting Internet-based systems that deliver voice and data as packets of information, rather than older circuit-switched systems. The single network approach theoretically allows carriers to cut costs by supporting only one technology while adding revenue streams from new Internet-based services.

"We wanted to build something that was comparable to the circuit switches that Nortel has sold for years," Sonus' Rogers said. "But the most exciting thing is the advanced services that you can't do with a circuit switch."

Analysts say that by building both the equipment and the software that runs on it, Sonus has an advantage over competitors.

Still, despite its early success, analysts warn that the company is a young one in the shark-infested networking waters.

Sonus and Convergent Networks are the last remaining independent companies from a small group of start-ups that began building voice and data, or "convergence," switches. Others were already acquired by Cisco, Tellabs and the Unisphere Solutions spinoff of Siemens.

"The competition is going to get much stiffer, but Sonus finds themselves in a very good position right now," Hansen said.