SONS Message Board - Msg: 21853162

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Technology Stocks : SONS

SONS 7.830

+2.8%

Nov 28 4:00 PM EST

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From: Cooters	11/3/2005 1:21:17 PM
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SONS – T-Systems (Deutsche Telecom) Softswitch Win Increases Confidence • We are maintaining our Accumulate rating and price target of $8 per share, which is based on a multiple of 36x our 2006 EPS estimate of $0.22. This is in line with our estimated growth rate for SONS. • Yesterday, Sonus announced a contract win with T-Systems (Deutsche Telecom), to support IP services and VoIP for business customers, which we believe will focus on urban area deployments. • This is one of SONS’ most significant softswitch contract announcements – for the scope of the network and the notoriety of the customer. • Our checks indicate that the initial contract is likely only worth a few million dollars an can grow to $2-3 million per quarter over the next 12-18 months. We expect Deutsche Telecom to gradually roll out SONS softswitches and gateways throughout its wireline network and to expand into new metro areas, providing a steady revenue stream for SONS into 2007. • We are maintaining our above consensus estimates, which is driven by softswitch sales ramping to $28 million (11% of revenue) in 2006. This includes service provider wins such as Deutsche Telecom. • An unannounced win of a large Class 5 softswitch contract at Verizon (VZ – Neutral – $31.47) gives us confidence in our above consensus EPS for 2005 and 2006. Our checks indicate that SONS has completed testing and we expect the deal to be announced by the end of 2005. · We are maintaining our Accumulate, versus a Strong Buy, due the risks associated of SONS’ highly concentrated customer base (top 5 customers generated 68% of 2Q05 revenue), lumpy quarterly revenue related to the long sell and delivery cycles, vague guidance and fluctuating quarterly book-to-revenue ratios. – Software-intensive softswitches placed at large service providers may be dependent on deployment and acceptance schedules. – Revenue recognition issues are consistent with contract payment timing issues that we are seeing at larger telecom system equipment vendors such as Lucent (LU- Neutral; $2.70) and Nortel (NT – Neutral $3.22).

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