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Finally, one of the worst kept secrets on Wall Street has been revealed: Ascend Communications Inc. (ASND-Nasdaq) is acquiring Stratus Computer Inc. (SRA-NYSE). Some analysts were aware of the negotiations for some time and couldn't believe Ascend actually wanted Stratus. Personally, I see a lot of merit in the deal, but I do have some concerns.
First things first: Why is Ascend interested in Stratus? Ascend is a dominant player among Internet access concentrator vendors and has a strong position in the fast-growing market for data network switching equipment, including asynchronous transfer mode and frame relay hardware. Only 30% of Stratus' revenue comes from selling voice network switching equipment and network operating systems software to telecommunications companies, but that's what attracted Ascend.
By adding Stratus' voice network hardware and software to its own data network products, Ascend is positioning itself as a one-stop shop for telecom companies as voice and data networks converge (the two companies already have a lot of clients in common, such as NEC). Ascend plans...