FRED LAX, TEKELEC

Circa 2001, Tekelec's business strategy was probably best summarized in a single word: diversification. In the spring of that year, the company's attention was divided between the signaling market (through its Eagle 5 signaling platform), the softswitching space (through its packet telephony division), testing and monitoring (through its network diagnostics unit) and call center solutions (through its contact center division).

During a period in which many companies were slimming down to focus on their core competencies, some viewed diversification as a risky move. But for Tekelec, a company that manufactures between one-quarter and one-third of the installed carrier base of signal transfer points, the formula seemed to work.

Much has changed at Tekelec since then. In February, CEO Mike Margolis handed the reins to Executive Vice President and Chief Operating Officer Fred Lax. And last fall, the company jettisoned its network diagnostics division, which was picked up by Catapult Communications. “The selling of our diagnostics business could be viewed as focusing more narrowly,” Lax recently acknowledged. “That transaction allowed us to focus more on our core and strategic business.”

But don't think that means diversification has suddenly become a dirty word in the halls of the company's Calabasas, Calif., headquarters. Tekelec is still determined to keep its reach well beyond the signaling space, a stance that was cemented recently with the announcement that the company will merge with next-gen switch maker Santera.

The deal is the culmination of Tekelec's ongoing mission to meld its bread-and-butter signaling base with its burgeoning next-gen switching business. In addition to nabbing a 52% stake in Santera, Tekelec gains the SanteraOne voice and data switch, a Class 4 and 5 tandem switching solution. The platform dovetails with Tekelec's own Class 5 offering, which Lax said had lacked the full feature set of the SanteraOne. “We decided that the combination of Tekelec and Santera would demonstrate our commitment to the next-gen switching market, but create an entity unlike any in the industry,” Lax said.

Geographic diversification will also define the company in the months ahead. Though Tekelec's signaling business will remain headquartered in Morrisville, N.C., its switching business will be located in Plano, Texas, which is where Santera is based. And to augment revenue growth well into the future, Tekelec is looking far beyond U.S. borders. The company has already set up offices in Brazil, China, Singapore and the U.K., and it recently landed a deal with India's Tata Teleservices for its Eagle 5 platform.

Lax forecasted that Tekelec's international sales will account for as much as 40% of its revenue by the end of 2005, a significant jump from the current figure of 16%. Taking away market share from local incumbents won't be an easy task. “They are not going to let us come in, hang up our shingle and just push them aside,” Lax said during the company's first-quarter earnings call.

Certainly, Tekelec will have to be very prudent in forging its way overseas. And just as finding the right balance will be integral to Tekelec's continued success, so will conveying that strategy to every employee in the company. “We can never over-communicate,” Lax said. “I think the employees are very focused on success. They are constantly tuned in.”