For that matter, there are a couple of ways to assess this deal. Either Oracle sees an imminent sector rebound and feels there’s too much unrealized value in Acme Packet, or it’s a defensive move, aimed at keeping Acme Packet out of the hands of another rival. But what does Oracle know about networking?
Can the Net-Net 6300 help fight off the competition?
Another concern for Oracle and Acme Packet will be the increased competition from Alcatel Lucent SA (NYSE:ALU) , which has recently been given new life. Alcatel-Lucent has seen its shares spike upward, partly because the company is no longer facing concerns related to liquidity after having secured a $2.1 billion financing pact.
This new financing will help Alcatel buy time while it seeks out some new business that might develop when the industry fully rebounds. However, working in Acme Packet’s favor is that the company has new technologies such as the Net-Net 6300 that should help stimulate growth over the next couple of years. Whether or not this can fend off more prominent names such as Cisco remains to be seen.
Nonetheless, it should help Acme Packet fight smaller rivals like Ciena and Alcatel-Lucent. The Net-Net 6300 is able to supply customers with high-capacity network communication between service providers. The device plug-and-play and also offers large-scale subscriber access environments such as VoLTE.
What’s more, it supports one million subscribers and has the capability of handling 200,000 simultaneous calls. In other words, this has game-changing potential for carriers as they begin to switch to session initiated protocol trunking, Acme Packet’s main area of expertise. CEO Andrew Ory recently described the Net-Net 6300 this way: “It improves our capabilities to meet the needs of our customers in three areas: for high-capacity network interconnect between service providers, for large-scale subscriber access environment, such as VoLTE, and for large-scale contact center and enterprises.”
There’s no question that this should help Oracle and Acme Packet preserve market share. But to what extent can the Net-Net 6300 help Oracle acquire more business and produce the growth that investors are paying for? Prior to the acquisition, analysts were projecting Acme Packet to grow at a 12.5% rate over the next five years. Will it be enough for Oracle?
A too-pricey premium
For as brilliant as Oracle has shown to be over the years, it’s too early in the game to start second-guessing its decision to buy Acme Packet. But the Q4 results were too horrible to warrant the premium that Acme Packet received. Also, while I’m not going to cry foul play here, I’m nonetheless flabbergasted that Acme Packet’s management was able to miss this badly on guidance. I believe Oracle knows exactly what it’s getting itself into with this deal. But I’m not so sure investors of Acme Packet realized what just happened.
The article Why Oracle Overspent on Acme Packet originally appeared on Fool.com and is written by Richard Saintvilus.
Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Acme Packet and Cisco Systems (NASDAQ:CSCO). The Motley Fool owns shares of Oracle.
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