Sangoma Technologies Corp. (SANG)

Sangoma Technologies tells the story of a hardware company trying to become a software company — a difficult and ongoing transition that defines much of the Canadian tech sector. The company began as a maker of telecommunications equipment (cards and adapters that plugged into servers to handle phone calls), pivoted to internet-based phone systems as the industry shifted from circuit-switched to IP networks, and is now repositioning as a cloud-based unified communications platform. That journey from hardware to software is not complete, and the company remains a hybrid — selling legacy hardware to customers who still need it, running on-premise software installations for traditionalists, and chasing a cloud-software future against well-funded competitors.

The hardware era: telecommunications cards and adapters

Sangoma was founded in 1987 in Winnipeg by Bill Rootes and others as a maker of specialized computer hardware — specifically, telecommunications interface cards and adapters. These were physical devices that plugged into servers and allowed companies to connect phone systems to computers. In the era before internet telephony, every business with a phone system (a PBX, or private branch exchange) was isolated from the data network. Sangoma’s cards let companies link the two, enabling features like computer telephony integration (CTI) — displaying a customer’s information on an agent’s screen when their phone rang, for example.

This was a niche business, but a valuable one. Every contact center, every large corporation, every managed service provider that wanted to offer advanced phone features needed specialized hardware. Sangoma built a strong position in this market and grew steadily through the 1990s and 2000s, selling cards, adapters, and accessories to systems integrators and telecom firms.

The business model was classic hardware: manufacture cards, sell them to resellers and distributors, earn a gross margin on the manufacturing cost, and reinvest in engineering. Sangoma developed strong relationships with integrators and became a trusted supplier in the telecommunications ecosystem.

The VoIP transition: moving to software

In the early 2000s, internet telephony (VoIP, or Voice over Internet Protocol) began to disrupt the entire telecommunications industry. Instead of dedicated phone lines and circuit-switched networks, voice could travel as packets over the internet, just like email or web traffic. This was radically cheaper and more flexible than traditional phone systems.

Sangoma recognized the threat and opportunity early. The company invested in software that would work with VoIP systems, particularly the open-source Asterisk PBX, a software-based phone system that ran on standard servers. Sangoma contributed code to Asterisk, built products around it, and became a key player in the open-source VoIP ecosystem. The company shifted from selling cards to selling VoIP systems, gateways, and software — still hardware-centric (you still needed a server and interface cards), but increasingly software-defined.

This transition kept Sangoma relevant through the 2000s as the industry shifted away from traditional PBX manufacturers like Nortel, Lucent, and Avaya (which, ironically, are now shadows of their former selves). Sangoma diversified into contact-center software, call recording, IVR (interactive voice response) systems, and other tools that sit on top of the VoIP layer. The company grew through organic investment and strategic acquisitions, buying complementary products and engineering teams.

The cloud era: chasing the market’s evolution

By the 2010s, the industry was moving again — from on-premise VoIP systems that companies ran in their own data centers to cloud-hosted unified communications platforms. Services like Zoom, Microsoft Teams, Cisco Webex, and others began to absorb voice, video, messaging, and collaboration into all-in-one platforms. For companies like Sangoma, this posed an existential challenge: the customers who had bought Sangoma on-premise VoIP systems were now asking “why do we need Sangoma when we can use a Cisco or Microsoft platform?”

Sangoma responded by building cloud offerings of its own and acquiring companies with cloud platforms. The company acquired Blade SIP (a hosted VoIP platform), Affinity, and others, trying to assemble a cloud-native unified communications offering. It also began to pivot its messaging and positioning away from “we make VoIP systems” toward “we are a unified communications and collaboration platform.” The legacy hardware and on-premise software business continued to generate cash, but growth shifted to the cloud.

This transformation has been messy and incomplete. Sangoma still carries significant revenue from legacy products — on-premise systems, specialized hardware, and VoIP gateways for companies that do not want to move to the cloud. That legacy business carries decent margins and generates cash, but it is not where industry growth is. The company is caught between two worlds: the declining but profitable past and the growing but expensive-to-build-and-competitive future.

The current business and strategic challenges

Today, Sangoma operates in three overlapping categories: on-premise communications equipment and software (legacy but still revenue-generating), cloud-based unified communications and team messaging, and specialized solutions for contact centers and service providers. The company competes directly against Microsoft Teams, Zoom, Cisco, and others in the cloud UC market, which is dominated by much larger, better-capitalized competitors with broader platform strategies.

Sangoma’s advantages are niche specialization (contact centers, service providers), deep relationships with systems integrators, and a loyal installed base of on-premise customers. Its disadvantages are size (much smaller than Microsoft, Cisco, or Zoom), capital intensity (competing in cloud software requires sustained R&D spending), and brand (Sangoma is not a household name, even in business).

The company has been loss-making or marginally profitable through much of the cloud transition. Building cloud products is expensive; integrating acquired companies is difficult; and winning market share from entrenched competitors requires heavy sales and marketing investment. Sangoma has tried to balance cash generation from the legacy business with investment in the cloud business, but that balance is inherently unstable — as legacy revenue declines, the cash available for investment shrinks.

Capital structure and sustainability

To fund its acquisition strategy and cloud investments, Sangoma has taken on debt and issued equity. The company’s financial structure reflects the strain of this transition: capital spending is high, organic cash flow is modest, and the company is dependent on maintaining enough legacy revenue to service debt while investing in the cloud future.

This is a common challenge for mid-sized tech companies in transition. Success requires executing the cloud transformation faster than legacy revenue declines — a bet on execution and market acceptance that not every company wins. Sangoma has been trying to make this transition for nearly a decade and has not yet emerged as a scaled winner in the cloud UC market.

How to research Sangoma

Investors should start with the SEC filings (CIK 0001753368) and segment the revenue between legacy on-premise products and new cloud offerings. Watch the growth rate and margin profile of each segment. Legacy products should be declining but profitable; cloud products should be growing but unprofitable (reflecting the heavy investment required). The inflection point — when cloud revenue grows fast enough to offset legacy decline — is the key to understanding the company’s trajectory.

Also look at customer acquisition cost, churn rate, and net retention in the cloud business. These metrics reveal whether customers value the platform enough to stay and expand. High churn or low net retention signals trouble.

Sangoma’s story is not uncommon in technology: a company born in the old era, forced to reinvent for a new one, trying to manage the transition without running out of cash or losing focus. The company has made meaningful progress, but the outcome remains uncertain. Understanding where it stands in that transformation — how close it is to building a sustainable cloud business — is essential to evaluating the investment.