Tekelec Still Struggling

Tekelec announced second quarter 2011 results last week.
It was a weak quarter in terms of orders and revenues, although the full-year guidance remains unchanged.

Tekelec is still stuck in the “business transformation” from SS7-based circuit-switched networks to IP-based next-generation networks. The next-generation products from the Camiant and Blueslice acquisitions, and the new Diameter Signaling Router, are good products, but orders and revenues from these products have been slower than expected. Tekelec is lucky that orders and revenues from the old “established” products are declining slowly and have not fallen off a cliff as some feared; in fact, there was a big one-time order for Eagle 5 in 4Q2010.

In the long run, the outlook for Tekelec’s next=generation products is good. Strong growth in the policy management market should drive Camiant sales, and 4G deployments over the next few years will result in strong demand for all of the next-generation control plane products. Initially, many LTE operators are purchasing complete Enhanced Packet Core (EPC)networks from single vendors, so there should be good potential for Tekelec to sell individual products to upgrade these networks one or two years down the road.

Overall, I like Tekelec’s new products and direction, but it is not a very exciting company. Top-line revenues have been more or less flat for years. The company seems unable to grow the business organically. Tekelec is sitting on a quarter million dollars in cash, so another acquisition to broaden the product portfolio is conceivable. However, with the market capitalization now down around a half billion dollars, their pile of cash might make Tekelec an attractive acquisition target.