8/6/98 Forrester Research report on ASND/SRA
[Okay, this report raised my blood pressure (so we're even Gary (OG) <<gg>>. Corrupt, stupid, lazy, clueless -- any other adjectives come to mind. How much money do consultants make anyway? Once again I ask, where do they find these guys? For background on Forrester, check out the very recent Cramer article on his frustration with them which I will post next]
[P.S. This report was supplied by a very kind lurker who wishes to remain anonymous... While we're at it, anyone have access to Johnson (BARS) or Noel (H&Q) reports...]
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Forrester Research, Inc.
NETWORK STRATEGIES
Volume Twelve, Number Sixteen
August 6, 1998
Ted Julian
Maribel Lopez
ASCEND GEARS UP TO BUY STRATUS
Ascend recently announced that it plans to purchase Stratus Computer, a fault-tolerant systems provider with 1997 revenues of $688 million. Ascend will:
Pay $822 million in stock. Ascend will exchange 0.75 shares of its
own stock for each outstanding share of Stratus. This purchase price
will be offset somewhat [uh, cash would probably be offset completely] by Stratus' $280 million cash in the bank.
Pare down Stratus' operations. With sales down 20% and a $10 million loss last quarter, Stratus was struggling to focus on its growing telecommunications business. Ascend plans to trim 500 positions and sell off Stratus' nontelecom-related business units -- specifically the Financial and Enterprise Software groups.
Anoint a new head of telecom. Stratus' CEO Bruce Sachs will become
the executive vice president and general manager of Ascend's Carrier
Signaling and Management Business Unit -- the telecom business that
today accounts for more than 90% of Ascend's revenue. The new EVP
will report directly to CEO Mory Ejabat.
WHAT IS ASCEND THINKING? [Uh, maybe using its strategic vision]
In picking up the systems vendor, Ascend intends to expand its focus on the telecom market by offering customers a fully bundled solution that includes remote access, voice call routing, and billing solutions. The key assets Ascend plans to leverage are:
A ready customer base. As a result of the acquisition, Ascend's heavy ISP customer base gets access to Stratus' Signaling System 7 (SS7) gear, while Stratus customers -- pretty much all of the RBOCs and most of the top 30 telcos[I'm impressed] -- get exposure to Ascend's remote access products.
Fault-tolerant hardware. Most telcos are loath to use off-the-shelf hardware -- their test for reliability is to douse gear with kerosene and light it on fire. Stratus provides Ascend with something it couldn't develop for years -- a telco-proven hardware platform for services like voice call routing. [I thought Cascade provided a telco-proven hardware platform...]
Smart software. Stratus' Operations Systems Software (OSS) billing
system provides a foundation upon which Ascend can layer value-added
services like local-number portability or Internet fax. As reliable
and flexible billing systems emerge as a core competency for service
providers, supporting these applications will become a key differentiator for the vendors that supply them.
BUT ASCEND WILL BUY MORE TROUBLE THAN VALUE
Ascend's motivation has merit, but these benefits could have been
achieved at significantly less expense through a tight partnership. [From what I've read, SRA was shopping itself around and ASND had to move]. Instead, Ascend will be saddled with merger-related headaches like:
People issues. Stratus was already planning to cut 350 positions;
Ascend plans to cut 150 more. In today's rapidly changing telecom
environment, Ascend can't afford to chew up management time on painful
restructuring that doesn't drive business. [I can't tell you how absurb this claim is. Using this "reasoning", there would be no mergers ever again...And, if ASND only keeps 400 employees (as stated), how much of a distraction is it really going to be, especially considering that the Cascade operations are right there and the employees can be easily integrated.]
Product problems. Setting up the Financial and Enterprise Software
units as subsidiaries and selling them off are the right things to do.
But with no clear buyers waiting in the wings, this will merely extend
Ascend's inward focus when an external focus on customers, partnerships, and competitive positioning is already overdue.
[What are they babbling about? ASND has been winning major contracts with the best ISPs/carriers, forming various partnerships (e.g., HWP and eFusion), and is the best strategically positioned networker in the ISP/carrier/WAN space. All the analysts can say lately is how the Cascade acquisition was a brilliant strategic move which was widely underappreciated at the time. Sensing a theme here, Forrester?]
Ascend's strategy should be to get acquired -- not to acquire. As an independent player, Ascend is dwarfed by giants like Cisco and the
merging Nortel/Bay combination. The intense needs of Ascend's customer
base -- increased scalability, sophisticated security and management,
and customer-facing applications like flexible bill presentment and
multiservice bundles -- will force gear makers to raise R&D investment
and grow their service organizations. A deep-pocketed voice vendor,
eager to make a play in data networking like Lucent or Ericsson, would
ensure Ascend's long-term play in the service provider arena. [No argument from me on the strategic fit between LU/ASND. But, I thought the SRA acquisition helps ASND in the above areas and, thus, Forrester should be applauding the SRA acquisition for these reasons.]
[Their analysis" is confused, superficial and, frankly, flat out wrong. As Bucky89 and others have astutely pointed out, ASND has no choice but to position itself as a vibrant, strong independent company no matter what happens with LU. And, today on CNBC, McGinn of LU even said he thought the SRA acquisition was a very wise move. Maybe I should start a thread to document the lame comments by "analysts" about ASND in the next couple months?]
Copyright 1998, Forrester Research, Inc. All rights reserved.
Forrester Research, Inc. helps companies understand and embrace technology change. Opinions reflect judgment at the time and are subject to change. [I really hope so] Technographics is a trademark of Forrester Research, Inc.
If you have any difficulties or questions, please contact the Forrester Customer Center, Monday through Friday, 7 a.m. to 7 p.m. EST. Phone: 1-888-265-7145 (toll-free in the United States and Canada) or +1 617 520-5730 E-mail: tech-support@forrester.com Fax: +1 617 868-0577
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