Nortel Networks (fka NRTLQ)

[PerfectSage]

Ben: Some interesting reading for you. durig.com has some very good articles, evaluating the business models of some tech companies. PerfectSage


Sonus Networks - 'Will This Innovative Company Lead a Telecommunication Revolution?'


13:00 EDT Thursday, July 01, 2004

LAKE OSWEGO, Ore., July 1 /PRNewswire/ -- An article on Sonus Networks was issued today by Randy Durig of Durig Capital, LLC.

To see this complete article and others written by Randy Durig, go to www.durig.com. We invite your comments and questions at www.durig.com/page5.html or email Randy at [e-mail].

Sonus Networks is a leading provider of carrier packet voice infrastructure solutions. They create, market, and distribute products for applying this technology. Sonus has several products that include the GSX9000 Open Services Switch, Insignus Softswitch, and Sonus Insight Management System. Sonus' mission is to lead the movement of circuit to packet networks for a new generation of technology.

Randy Durig helps to explain why he thinks, "Sonus has a real chance to be a big player in the modern technology world."

We invite you to view this entire article to learn more about Sonus:


-- Applications In Landlines, Wireless, and Wide Area Network (802.11)
-- Durig's Laws Applied to Sonus
-- Competitive Advantages
-- Possible Risks
-- Conclusions

To receive our next article or for more information about the Monopoly Portfolio, please go to http://www.durig.com/





Sonus Networks, Inc.
“Could This Little Company Lead the Next Telco Cycle?” (SONS - $4.20)

LAKE OSWEGO, OR, May 30, 2003 / PRNewswire / - An article was issued today by Randy Durig of Durig Capital, LLC.

To receive our next article or information about the Monopoly Portfolio, please click here. Your comments and questions are welcome.

Would you like to pay less for long distance?

Do all of the carriers want to reduce cost while increasing services?

Could Sonus be the next giant?

Past to Present
Sonus Networks, Inc. is a leading provider of voice infrastructure products for the new public network. The company’s products are a new generation of carrier-class switching equipment and software that enable voice services to be delivered over packet-based networks. With its Open Services Architecture (OSA), Sonus delivers end-to-end solutions addressing the full range of carrier applications.

Sonus is also a leader in Voice over Internet Protocol (VoIP). The VoIP or packet voice market has many advantages over existing circuit-based voice switches.

It reminds me of the challenge between the personal computer versus the mainframe. According to ‘Moore’s Law’, the brains of a PC doubled the processing power every 18 months while staying at the same price point. The mainframe made more of a traditional 4-8% improvement each cycle. Due to many years of compounding, a cheap PC today could do more number crunching than the many mainframes NASA used on its first moon landing.

‘Moore’s Law’ now applies to the VoIP with Ethernet data rates increasing from 10-100-1000 MB/s. With the ability to send and receive greater amounts of data and this data growing at an exponential curve, while circuit switches are only improving at a modest rate, the VoIP could do to the circuit switch what the PC did to the mainframe.

The carriers that focus on a single data networks reduce the maintenance and support costs faster than carriers using two separate networks (one for data and one for voice). The single network is far more efficient.

Traditionally, software was built into a circuit switch system and you just held your breath and hoped it was debugged sufficiently. Sonus is working on a platform-based solution that could allow you to add software to your system as a market warrants. This increases both flexibility and response rates for clients. It also allows for testing in small markets before major launches are implemented. This could help many of the carriers with reputations indicating that an increase in service level would be welcome.

Traditional circuit switches cost about 10 times what it costs for Softswitch and Media Gateway from Sonus. There’s a more favorable cost for packet-based technologies because it’s more flexible and less expensive to deploy than traditional local circuit switches.

Future

Why could Sonus lead the next telecom cycle?

We have just gone through one of the largest stock market declines in 40 years and one of the epicenters of this massive decline was Telco. With that decline in mind, Sonus has gained market share in almost every category and is holding anywhere from 50% to 90% share in the major market segment that they compete in.

Packet-base is a disruptive technology to the circuit switch market. That makes Sonus the leader in the packet-based market and in better shape than the leaders of circuit-switch market.

A data packet of Internet long distance is far more cost effective as a solution. It lowers the cost of using the Internet, which allows companies to offer long distance rates similar to Internet service rates.

Sonus established an open Service Provider Network, which helps enable other companies to work seamlessly inside of the Sonus architecture. This provides a value chain or network effect. There were about 20 companies in September 1999 that Sonus helped to enable. According to Sonus, there are about 150 today. This expansion of applications helps to create more demand for the base architecture.

According to’ Durig’s Law’ (Forecasting a Revolution or FAR) when you have a vertical market that’s feeling the effect of ‘Moore’s Law’ (doubling efficiency regularly), it would also double performance providing a penetrating basis for the technology. When Sonus has a vertical market expanding similarly at around 150 products or solutions, it increases the demand for the penetrating technology. According to FAR, the horizontal and the vertical markets are multipliers that magnify the growth of the overall market. This could become very large and possibly replace the $35 billion dollar packet switch market very suddenly.

Sonus is working to expand their vertical markets using the technological leverage that they are gaining to enter the voice-over-cable, DSL and/or wireless markets. Even for the wireless market, where long distance is often cheaper, Sonus believes they could reduce the cost of certain carriers by over 50%. Motorola has just purchased the largest competitor in the wireless market, believing that this was a product necessary for Motorola to grow their infrastructure.

Sonus is a special situation in that it is still a very small company but could qualify under another ‘Durig Law’ named “The Theorem of Enabling Technology” or TET. Under TET most companies need the market to grow to be successful but sometimes there is a special company that enables others to help grow the overall market. The enabling company has a special position that allows many other applications or services to utilize some type of core product to help increase the their sales.

This is how Microsoft gained such great strength. Dell, Gateway and Compaq all used Microsoft’s platform so they could increase sales. Of course in return the core enabler often gets multiple products and solutions built on top of its platform increasing both direct and indirect demand.

In this case the enabling company might be Sonus. If it truly enables the data packet industry, that leverage could allow it to be a very large company some day.

Possible Risks

Sonus has a stock price and earnings history that has been far more volatile than its peers.

They are the leader of VoIP and that market will become a very large and highly desirable one bringing many of the strongest competitors to the industry.

Many of Sonus’ competitors are better financed than they are.

Competition
The main competitors are Lucent and Nortel presently. Both of these companies are much larger in size and are the leaders in circuit switch markets. The disruptive migration to packet data is one possible reason why both Lucent and Nortel are experiencing such poor performance and low valuation.

Both Juniper and Cisco have similar business models to Sonus’. Both are very large in the router market with their own enabling models. Both are holding values over 5 times the industries being disrupted. Sonus is router agnostic but Cisco will not let such a valuable market go without a fight.




Competition




Price / Sales

Lucent
$ .32

Nortel
$ 1.22

Juniper
$8.88

Cisco
$6.25

Sonus
$14.18

Motorola
$ .75


Sonus has only demonstrated it has growth potential for a couple of quarters. This has already moved the value to a premium of its peers. If the company can continue or accelerate its future quarters, that premium could expand nicely. If the company stumbles again, the premium could deflate.

Since only 1% of global long distance is IP based and the cost benefits are so high, you might read were some companies are outsourcing their call centers. Some are moving this function to India or to the Philippines because of the low labor costs. These low costs become very attractive on a fixed rate long distance program. If they charged you as much as your Internet service provider the much lower labor costs become very attractive.

Conclusion

Sonus is in a special situation. I really recommend you read my ‘Theorem of Enabling Technology’ because even though Sonus Networks, Inc. is a very small company now, it has many of the same characteristics of some of the greatest companies in modern technology history.

To receive our next article, request more information about the Monopoly Portfolio, Theorem of Enabling Technology or other services we provide, please click here.



Randy Durig has been in the investment industry for over 15 years. He spent most of his early years studying and measuring monopolistic companies. He believes that separating and measuring the advantages of the past “Monopolies” should increase the accuracy of forecasting the next great dominator. After many years of study and finding no other investment vehicle with this simple, long-term, tax efficient model he introduced and became the Manager of the Monopoly Portfolio in 1997. His definition of “Monopoly” is a company with several tangible advantages over the competition.

Randy Durig, CEO/RIA

Durig Capital, LLC

17020 Pilkington Road, #200

Lake Oswego, OR 97035

Phone: [phone] or toll free 866/277-7800

CONTACT: Investors, Randy Durig 503/697-6217, [e-mail]