Alan Weissberger Silicon Valley History Technology

Sonus to acquire Network Equipment Technologies for $41.3M- a fraction of 1987 IPO price!

Author’s Note:  This news item caught my eye, because NET was a rising star in the late 1980’s datacom world.  They were a leader in T1 Multiplexers from 1987 and an innovative provider of ATM and IP network equipment in the 1990s.  The company re-invented itself several times, but never regained the momentum it built up over 25 years ago!  More on that later on in this article.  This author consulted for NET from 1987-1989 and also taught a class there on Frame Relay in 1990 with former partner Roger Koenig.

The News:

Sonus Networks has agreed to acquire Network Equipment Technologies (NET) for $41.3 million in cash, adding government agencies and big companies to its customer base. Half of NET’s revenues come from government customers, such as the U.S. Department of Defense, the U.S. Army, NASA and the Ministry of Defense in the U.K.  That’s quite a bit different from NET’s early history, when it had focused on enterprise customers connecting their locations with T1 private lines.

Today, NET delivers high performance networking solutions optimized for secure real-time communications in unified communications (UC), SIP Trunking, enterprise mobility, and IP-based multi-service networking.   50 percent of NET’s total revenue came from government customers last year.  NET counts the U.S. Department of Defense, the U.S. Army, NASA and the U.K Ministry of Defense among its customers along with Accenture, Northrop Grumman and Procter & Gamble.

“NET has a long history of selling to U.S. and foreign governments which presents a new vertical market opportunity for Sonus,” Sonus Chief Executive Ray Dolan said on a conference call.  NET is also a key enabler of Microsoft’s unified communication solutions, which boosts Sonus’s ability to address the growing market, Dolan said.

Sonus expects the deal to add about $15 million to $20 million to its revenue in the second half of fiscal 2012.  If the deal adds $20 million to Sonus’ revenue, it will have no impact on or will slightly add to its adjusted earnings in the second half, the company said.  However, if it adds only $15 million, adjusted earnings will be hit by about 1 cent per share.  The all-cash deal is expected to close in the third quarter of 2012.

An early history of NET:

In August 1983, NET closed their first round of venture capital and was formally founded.  They moved very quickly to get product to market.   About one year later – in September 1984-  NET shipped their beta release of the Integrated Digital Network Exchange (IDNX) T-1 multiplexer.  They also secured a second round of venture capital funding. In January 1985, NET began shipping IDNX’s for revenue. Success came fast. Their sales ramp rate was so fast, NET became profitable in April 1986 with revenues of $6.7 million for the quarter ending June 1986 and profits of $400 thousand. As a result of this stellar short term performance, NET went public in January 1987 with a post money valuation of nearly $200 million.  Later that year, they took over first place in the T1 multiplexer market, surpassing such established players like General Datacom, Timeplex, Milgo, Codex and Infotron.

For the fiscal year ending March 1987, NET’s sales were $47.4 million, representing a growth rate of 450%. Profits totaled $5.1 million.  Nice work in such a short time frame.

NET’s meteoric rise did not go unnoticed.  On June 16, 1987, NET and IBM announced terms of an agreement between their two companies.  IBM began selling the NET products under a non-exclusive worldwide marketing, installation and service agreement. IBM would also contribute funding to future NET product development and incorporate NET technology into its networking products.

Several new and promising technologies, including ISDN, Frame Relay, ATM, VoIP, etc proved challenging for NET, such that they did not maintain their leadership position after their success in T1 multiplexers.  As corporations moved from private line digital networks to public data networks and IP VPNs, other companies provided stiff competition .  Nonetheless, NET survived and remained a viable independent network equipment vendor for all these years.  But they are now only worth about 20% of their January 1987 IPO price (and that’s not including cumulative inflation we’ve had in the last 25+ years).  We suspect Sonus is getting their money’s worth!

Author Alan Weissberger

By Alan Weissberger

Alan Weissberger is a renowned researcher in the telecommunications field. Having consulted for telcos, equipment manufacturers, semiconductor companies, large end users, venture capitalists and market research firms, we are fortunate to have his critical eye examining new technologies.

4 replies on “Sonus to acquire Network Equipment Technologies for $41.3M- a fraction of 1987 IPO price!”

Thanks Alan for documenting this bit of Silicon Valley history. History happens so fast in this Valley – which I use a a metaphor the technology industry – that it is doomed to repeat. The bloom on today’s technology business success flower quickly fades in with the fast pace of change.

One constant is the people who learn and grow from these ventures. It would be an interesting infographic to see where the alumni from NET went and the start-ups they spawned over the past 25 years.

Thanks for your comment Ken! What I do know is that in 1990 when I presented a Frame Relay seminar at NET, they had hired several key technology execs from Cisco (which had just gone IPO), Bell Labs (then part of AT&T), various hot start ups in Silicon Valley, etc. NET was the PREMIER networking equipment company in town and was believed to dominate the next decade in telecom/ datacom (if not longer).
Could the same fate befall some of the current social network & Internet high flyers? Does anyone remember what happened in 2000-2001 when the Dot Com bubble burst? Caveat emptor!

Sonus specializes in voice and multimedia infrastructure technologies. The NET acquisition should complement their product line and expand their customer base to include government agencies.

Thanks for the history lesson about NET! Very interesting and enlightening.

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