Will CoSine Get Carved Up?

The outlook is still uncertain for troubled equipment company CoSine Communications Inc. (Nasdaq: COSN), although one analyst believes that the company could still be a viable acquisition target.

The last few months have been tricky for CoSine, to say the least. The first signs of trouble emerged back in July when the company announced it was examining "strategic alternatives" after a poor second quarter (see CoSine: The Big Sell-Off?).

Since then, Ernst & Young stepped down as CoSines auditor and the company laid off most of its employees (see CoSine: E&Y Says Bye-Bye and CoSine Cuts to the Bone).

Then, last week, CoSine announced that it that it had signed an agreement for the early termination of the lease on its Redwood City, Calif., headquarters. The company also released its third-quarter results, posting a net loss of $14.6 million, or $1.47 per share (see CoSine Posts Q3).

But it’s not all doom and gloom; CoSine ended the quarter with $33.6 million in cash. Kevin Mitchell, analyst at Infonetics Research Inc. believes that this could make the company a viable target.”CoSine could be attractive to someone who wants to get hold of that cash, customer contacts, and intellectual property -- ranked in that order,” he says.

So, who would be up for acquiring CoSine? The first name that springs to mind is rival vendor Quarry Technologies Inc..

The Burlington, Mass.-based company has already looked into the possibility of this, according to a Quarry spokesman, although a deal is unlikely. “We explored various options but our understanding is that they are going to be sold in a non-strategic financial transaction.”

This implies that CoSine could eventually end up in the hands of asset-strippers, although no announcement on the company’s long-term status has been made. In a statement released last week to accompany its third-quarter finanicals, CoSine said it is still exploring "strategic alternatives." These include a sale of the company or its assets or even a winding-down of the business and liquidation.

Such is the shrinking nature of CoSine that CEO Steve Goggiano and CFO Terry Gibson were listed as the main contacts on the press release that accompanied the earnings announcement. Neither exec returned calls from NDCF earlier this week.Whatever the outcome, Quarry has already positioned itself to catch any CoSine users affected by the shakeout. The Quarry spokesman told NDCF that the company has created a migration program to entice users of CoSine’s IPSX switch onto Quarry’s iQSecure platform.

This includes network design and integration, transition planning, and on-site support, he says.

— James Rogers, Site Editor, Next-Gen Data Center Forum