Many financiers for Israel's high-tech industry were astonished at the company value that BigBand Networks Inc. (Nasdaq:BBND) obtained in its IPO in 2007 - $743 million, after money. The value was huge, especially for a company engaged in a highly competitive sector, communications equipment for the management of multimedia transmission on cable and telecommunications networks.
BigBand reached Nasdaq at the peak of a very high wave. Video-on-demand (VOD) was just starting to flourish, and the equipment that cable companies needed to provide it without the need for infrastructure upgrades, was in high demand. BigBand achieved $176 million in sales in 2006-07, but then the question arose: would it be able to make the transition from a focus on cable companies - a limited market with many bigger competitors - to IPTV - Internet television?
BigBand founder president and CEO Amir Bassan-Eskenazi believed that it could. The first promising name was Verizon Communications Inc. (NYSE: VZ), which prompted him in an interview to compare his company with Juniper Networks Inc. (Nasdaq: JNPR), which succeeded where Cisco Systems Inc. (Nasdaq: CSCO) had failed. Four years later, Verizon, Time Warner Inc. and Cox Communications Inc. are still BigBand customers, accounting for 74% of its income in 2010.
The telecom market can be a brutal one for companies of BigBand's size. Small companies with few products or customers are operating in a market dominated by giants like Cisco and Motorola Solutions Inc. (NYSE: MSI), as well as ARRIS Group Inc. (Nasdaq: ARRS).
BigBand says that it has more than 200 customers, but that is a small number in such a complex market, in which every lost customer can materially affect a vendor's income - which is what happened to BigBand.
The question is why didn’t BigBand uses its strong cash reserves to make acquisitions, change its strategy, or invest in other fields. Today's sale of the company suggests that BigBand has something going for it, but the price paid for strategic dithering will not only be paid by investors who lost money, but by employees who will lose their jobs following the takeover.
Published by Globes [online], Israel business news - www.globes-online.com - on October 11, 2011
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