What does Oracle's Acme Packet purchase mean for enterprise communications?


Wall Street seems to like Oracle's (Nasdaq: ORCL) proposed acquisition of Acme Packet (Nasdaq: APKT), given the jump in the stock price from $23.93 at close of trading on Friday to around $29.50 during mid-day trading on Thursday, despite Acme Packet reporting a $6.5 million loss and a drop in revenues for its fourth quarter.

Oracle agreed to pay $29.25 per share for Acme Packet, a 22 percent premium on the stock closing price on Friday, for a total of $1.7 billion, or $2.1 billion if Acme's balance sheet cash is factored in.

While the deal might be good news for Acme Packet's stock, is it good news for Oracle and the enterprise communications market?

Oracle appears to be trying to shore up its position in the unified communications (UC) market through acquisition rather than investment in new products. It is competing with  heavy hitters such as Microsoft (Nasdaq: MSFT), Cisco (Nasdaq: CSCO), Avaya and Siemens Enterprise Communications (NYSE: SI).

Oracle plans to incorporate Acme Packet into its communications product portfolio, which includes business operations applications such as customer relationship management, service operations such as network intelligence, core network products such as its network app platform and user applications such as email and instant messaging.

Acme Packet dominates the market for SBCs, a crucial piece in any UC portfolio. The company holds a 40 percent share of the carrier SBC market, according to stats from Infonetics Research. Its closest competitor, Sonus Networks (Nasdaq: SONS), has only 22 percent of the market.

In the enterprise space, Cisco recently passed Acme Packet as the leading provider of enterprise SBCs, according to Infonetics. Although competitive pressures pushed average revenue per session down, enterprise SBC revenue did total $82.5 million in the first half of 2012.

Cisco's strong position in this market no doubt contributed to Oracle's desire to acquire a strong enterprise SBC player like Acme Packet.

This deal appears to be a good acquisition for Oracle in its effort to expand in the UC marketplace. But did the company agree to pay too much for the SBC provider? Yes, says Richard Saintvilus with The Motley Fool. "With telecoms ravaged by poor carrier spending, it's not yet clear that Acme Packet deserved this premium," wrote Saintvilus. He argued that Acme's poor fourth quarter results reinforce the view that Oracle overpaid, although Oracle "knows exactly what it's getting itself into with this deal."

At the same time, a number of Acme Packet investors don't think Oracle is paying enough and have hired a law firm to investigate the acquisition.

I guess there is no way to make everyone happy with these types of deals. There is no question that the acquisition will boost Oracle's UC offerings and position it to capitalize on the transition to an all-IP-based network. The acquisition should also provide more choice for enterprises as they look around for UC vendors that offer comprehensive packages. - Fred

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