What's Wrong With Sonus Networks?

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Voice-over-IP telephony expert Sonus Networks (Nasdaq: SONS  ) was hit with a heavy hammer yesterday, falling as much as 16.5% in early trading due to a disappointing earnings report.

Sales fell by 30% quarter-over-quarter and 24% year over year to $42.7 million in the third quarter, leading the company back to reporting a net loss after reporting three quarters either in the black, or near break-even. The reason for the weak sakes was the timing of "several large orders," according to management.

The balance of deferred revenue from largest customer AT&T (NYSE: T  ) continued a shrinking trend, so it wouldn't surprise me Ma Bell could be the company holding back. The fact that the company is sticking by its earlier revenue guidance for the year underscores the temporary nature of this problem, but a short-term issue is often enough to bring on a severe beating about the head and neck by impatient traders. That's what we're looking at here.

Sonus is under new management. CEO Ray Dolan has all of three weeks of experience on the job but 25 years of industry-specific background to fall back on. Ray will need all of it as he faces down direct competition by major network equipment builders from Cisco Systems (Nasdaq: CSCO  ) to Alcatel-Lucent (NYSE: ALU  ) -- a telecommunications package isn't complete these days without a built-in VoIP component.

That also makes buyout bait out of Sonus, and low share prices could fuel acquisition interest in the company. Dolan fought off questions on that topic in the earnings call, but his reign might be a short one if hungry sharks start circling the waters.

Do you see Sonus bouncing back, going under, or getting eaten in the near future? Share your theories in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool has written calls (bull call spread) on Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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  • Report this Comment On November 04, 2010, at 12:55 PM, JackLance wrote:

    This stock has been a steady climber for over a year now, I'm staying onboard and count my money when Sonus get bought out.....

  • Report this Comment On November 04, 2010, at 6:06 PM, mukesh2001 wrote:

    Everytime this stock gets hammered... people have got into the habbit of pulling the 'buy-out' card.

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