GVTucker and ALL, Article... Pricey acquisitions propel Intel, TI into VoIP...
June 8, 1999
ELECTRONIC ENGINEERING TIMES : Dallas - A pair of high-dollar acquisitions last week by Texas Instruments Inc. and Intel Corp. made it clear that the largest semiconductor companies in the industry are staking out competing positions in the newest industry gold rush: voice-over-IP (VoIP).
Intel's proposed acquisition of Dialogic Corp. (Parsippany, N.J.), in an all-cash deal valued at about $780 million, came shortly before Texas Instruments announced it plans to acquire Telogy Networks Inc. (Germantown, Md.) for about $435 million in newly issued TI stock.
The Dialogic deal was the second major acquisition in the communications arena this year for Intel, which picked up Level One Communications Inc. (Sacramento, Calif.) in March in a $2.2 billion stock swap.
The two moves further emphasize the importance that digital signal processors and DSP-based software will play in the communications market. Max Baron, a senior analyst at Cahners In-Stat Group, said the deals can be viewed against the background of Lucent Technologies Inc.'s and Motorola Inc.'s decision to form the StarCore DSP development joint venture, and Intel's agreement to work on a new DSP architecture with Analog Devices Inc.
Baron said the use of DSPs to compress voice makes the Telogy acquisition "the right move at the right time. Voice over IP is going to be a very big business, and by doing this deal TI could be the leader."
Others questioned whether TI's ownership of the leading software vendor in the field would limit Telogy's software, tying it too closely to TI's silicon. And with Telogy's becoming the "preferred in-house supplier" of software to TI's solution providers, the deal might make it more difficult for other software vendors to compete for TI's attention.
Baron said the pressure will be on Motorola, Lucent and many others to explain what they are doing to provide silicon and software to the VoIP marketplace. Lucent already has acquired European digital-cellular software stack provider Optimay and has reached deals with SRS Labs Inc. for voice-clarity software. But it has not looked outside for any direct packetization or protocol-stack software expertise.
Sean Lavey, a research analyst at IDC Research, said Lucent has been particularly active in the VoIP chip field, introducing a single-chip solution for a Web phone, as well as card-based gateway solutions to add VoIP capabilities to PBXes.
Mike Hames, TI vice president in charge of DSP operations, said TI's takeover of Telogy was based on an expectation that the way telephones operate will change radically over the next five to 10 years, from today's circuit-switched networks to packets of voice, data and video transmitted over Internet Protocol (IP) or frame-relay networks.
Hames predicted that over the next decade, close to 700 million phone lines will transition to digital voice, creating a potential revenue stream of about $1 billion per year for TI alone, based on "the opportunity to put a DSP in every phone, every interface to the telecommunications infrastructure and every Internet appliance."
"The move to packet networks is the beginning of a revolution even larger in scale than the migration from analog to digital in wireless telephony," said Joseph Crupi, president and chief executive officer of Telogy Networks. The VoIP market grew by more than 400 percent last year, Crupi said.
For Intel's part, John Miner, general manager of the enterprise server group (Santa Clara, Calif.), said that "if you look at the overall pattern of our acquisitions, it should be clear that our intentions are to be a major participant in network infrastructure for tele-communications, data communications and the convergence of the two. The Level One acquisition provides silicon for the physical interconnect between the WAN [wide-area network] and telecommunications network and data network," and the Dialogic acquisition provides a different piece of the computer-telephony-integration (CTI) puzzle.
"In the CTI environment, you're going to have several different interfaces-from the voice network to the computer and from the computer to the LAN, WAN or Internet," Miner said. "The combination of products from [Intel's] Networking Communications Group and from the Dialogic subsidiary will provide a complete set of I/O interfaces and software building blocks [for CTI]."
A recent In-Stat survey of major corporations showed that within 18 months, two-thirds of the respondents planned to initiate voice-data packet networks. "Certainly within a five-year period, some form of packetized voice data is going to happen at nearly every major corporation," said Peter Meade, an In-Stat senior communications analyst based in San Diego. "What we are seeing now is the big fish gobbling up the small, and the question is how they handle the people issues, the integration of these talents."
Forward Concepts president Will Strauss believes that "ultimately, VoIP will be a success because of the bandwidth economy that it brings and the universal messaging ability that packet switching of voice, data and video will bring."
Dialogic is considered the largest of the CTI board houses. Forward Concepts figures that Dialogic has a 50 percent share of the CTI board market, with Natural MicroSystems (Framingham, Mass.) and Brooktrout as its main competitors. CTI vendors traditionally have focused on add-in cards for PCs that incorporate time-division-multiplexed buses to handle voice calls in native analog format. The CTI industry is focused on the enterprise and has only recently come around to VoIP support.
Dialogic's DSP-based resource boards and its comms/telecom boards span the ISA, PCI, VME and CompactPCI buses and the Windows, Solaris and Unixware operating-system environments. The company's 1998 revenue was $294 million, and it has enjoyed an average compound annual growth rate of 25 percent over the past five years.
Telogy represents the stack developers aiming primarily at VoIP in the WAN, where packetized voice enters a network characterized by native packet switches and Internet Protocol stacks. To a certain extent, the acquisitions play to Intel's and TI's respective strengths: Intel's networking forte is largely an enterprise business that augments its desktop and server presence, while TI is putting more and more of its DSP emphasis on broadband serial access to the WAN.
Strauss noted that Dialogic is a large consumer of DSP chips, mostly from Motorola and TI. Once Motorola's largest DSP OEM customer, Strauss said, Dialogic has latched on to TI's C6x for a number of new designs, since one C6x can replace several earlier-vintage DSP chips.
Big iron movers
Over the past year or two, Dialogic-like NMS, Mitel and Brooktrout-has been mov-
ing strongly into the packet-switched VoIP market. "That's a hot hardware market now because all of the 'big iron' networking-equipment companies, such as Cisco, 3Com, Nortel and Lucent, are all introducing products and jockeying for early market position," Strauss said.
Maury Kauffman, managing partner at The Kauffman Group (Voorhees, N.J.), said that the two companies are "a real good fit. They've been moving in the same direction and have the same vision of open computing."
In March, Microsoft licensed Dialogic's CT Media software for integration into future versions of Windows NT. Microsoft's intent is to merge CT Media with its Telephony API for Windows. At the same time, Microsoft plunked down $24 million for a 5 percent stake in Dialogic. Intel's Dialogic acquisition thus strategically links Intel and Microsoft in a common quest to drive PC standards into the telecommunications space.
The Intel/Dialogic merger "signals to us the mainstreaming of the open-systems approach to telecommunications," said Howard Bubb, Dialogic's chief executive officer, who will serve as president of the Intel subsidiary and as an Intel vice president. "Today's telecom market is pretty much governed by proprietary platforms that are not responsive to user needs, because users and VARs can't customize and rapidly evolve them."
But according to Kevin Volpe, a research director at The Gartner Group (Stamford, Conn.), the Dialogic acquisition may be "a short-term play " for Intel. "The board business is coming to the end of a cycle. It's a short-term market segment," he said.
On the one hand, large servers are moving to "an open IP, object-passing model [with] no need for specific interface boards," Volpe said. And on the other, the need for traditional telephony interface boards will wane " as carriers converge on digital connectivity through access concentrators. "
Intel plans to make a cash tender offer todayof $44 per share for Dialogic stock. Company founders and board members, who collectively own about 33 percent of Dialogic's stock, have agreed to tender their shares.
Strauss of Forward Concepts said Telogy is clearly the leader in voice-over-packet software licensing, including VoIP, fax-over-IP and voice-over-frame relay.
Strauss said he believes "it's a good marriage for TI in that they augment their DSP products with software, making them more attractive to a wider audience. Because VoIP standards are in a state of flux, the programmability of TI's chips are a definite requirement to serve this market.
"And because they now have the ability to make sure the software changes as standards change, TI is in a position to help its customers stay on top of those changes."-Additional reporting by Loring Wirbel.
By David Lieberman,David Lammers , Stephan Ohr
|
