Microsoft Buys Metaswitch For Cloud-Based Telecoms Move, 5G Expansion

Microsoft Corp. (MSFT) has signed a definitive agreement to buy virtualized network software provider Metaswitch Networks to help boost its exposure to 5G and increase its offerings for the telecommunications industry.

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Terms of the deal weren’t disclosed. Private equity-backed Metaswitch offers cloud-based voice, data and communications solutions for telecommunications operators.

“The convergence of cloud and communication networks presents a unique opportunity for Microsoft to serve operators globally via continued investment in Azure, adding additional depth to our hyperscale cloud infrastructure,” Yousef Khalidi, Corporate Vice President at Microsoft said in a blog post. “Metaswitch’s complementary portfolio of ultra-high-performance, cloud-native communications software will expand our range of offerings available for the telecommunications industry.”

Metaswitch was founded in 1981 as a pioneer in next-generation voice technology and counts British Telecom, T-mobile, Swisscom, Telstra and Vodafone as its main customers.

“As the industry moves to 5G, operators will have opportunities to advance the virtualization of their core networks and move forward on a path to an increasingly cloud-native future,” according to Khalidi.

This announcement comes less than a month after Microsoft’s acquisition of Affirmed Networks, which focuses on cloud-native networking solutions for telecom operators and mobile carriers.

“Coupled with its recent acquisition of Affirmed, the move further cements MSFT’s aim to become a major provider of virtualization services and 5G networking to global telecom providers,” Ryan Koontz, five-star analyst at Rosenblatt Securities wrote in a note to investors. “While we hold doubts as to the scope of near-term financial gains for Azure in the telecom segment, we see strategic advantages as Azure gains access to valuable real estate at the carrier edge.”

According to Koontz, the 5G Core market is estimated to reach about $10 billion by 2025 from its current $1 billion, “seeing impressive growth as 5G stand-alone (SA) networks begin wide scale deployments beginning in 2021”.

Shares in Microsoft have soared 35% in the past two months and were trading at $183.16 on Friday.

TipRanks data shows that Wall Street analysts are almost unanimously bullish on Microsoft’s stock. Twenty-one out of 22 analysts have Buy ratings and 1 has a Hold rating adding up to a Strong Buy consensus. The $198.67 average price target provides investors with 8.5% upside potential in the shares in the coming 12 months. (See Microsoft stock analysis on TipRanks).