Oracle Not Done with Its Telecom Foray

NEW YORK ( TheStreet) -- After the Acme Packet acquisition, many industry pundits felt that Broadsoft ( BSFT) would be the next target for Oracle ( ORCL) in the quest to bolster its communications portfolio. The two key arguments for this thesis were the fact that Acme and Broadsoft had been working very closely together since around 2000, and that Broadsoft has an attractive current price after reporting soft results in the last quarter of 2012 (BSFT had lost about 50% of its valuation since its Q4'12 results and weak 2013 guide before bouncing back up with a good Q1'13).

The close relationship between Acme Packet and Broadsoft developed quickly, since both were startups in the VoIP space and there were synergies due to the complementary nature of their products. Acme's strength was in the Session Border Controller (SBC) arena, where it has a leading product that sets up, manages and terminates sessions between a user and his target destination (be it a private IP address, a SIP trunk operator or the public Internet), delivering the necessary data (voice, video, data) and performing functions along the way (coding/decoding, security, etc.).

On the other hand, Broadsoft makes a leading VoIP SIP application server offering a plethora of services. These include call handling (for example, call forwarding and music on hold), voice/video conferencing and unified communications (integrated voicemail, email, text, faxes). The two products go hand-in-hand: an enterprise deploying a VoIP app server would typically need an SBC at the edge of its corporate network. Therefore, the two companies share a pretty similar customer base constituted by large enterprises and carriers reselling VoIP services to smaller enterprise customers.

However, much to these experts' surprise, the next M&A move Oracle made in March was Tekelec. No financial terms were disclosed, but Tekelec had been taken private in January 2012 by a consortium led by Siris Capital for $780 million. Oracle made this acquisition realizing that it needs to make a bold move into the carrier space, not only to get more diversification away from enterprise/SaaS, but also to be able to maintain its highly skilled and remunerated sales force. This objective is harder to achieve in the enterprise software space, where deals are getting smaller and margin squeeze is becoming more prevalent. By selling carrier solutions that are highly customized, involving not just software but also hardware appliances, Oracle will be able to maintain its current sales modus operandi.

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