Amdocs Rallies, Fills SDP Hole

It's been quite the week for telecom software giant Amdocs Ltd. (NYSE: DOX), which announced a strategic acquisition and saw its share price spike following better-than-expected financial results.

Late Wednesday the company reported revenues for its fiscal fourth quarter (ended September 30) of $707 million, much better than the $670 million to $690 million it had been expecting. (See Amdocs Reports Q4.)

In addition, Amdocs also said it expected revenues ranging from $705 million to $725 million for the current three-month period to the end of December (the first quarter of its fiscal 2010), which is better than the analyst community had expected.

The news sent Amdocs's share price up by $2.27, about 9.3 percent, to $26.74 by the close of trading Thursday.

But it wasn't just the vendor's numbers that excited investors: During the company's earnings conference call, CEO Dov Baharav noted that Amdocs is "cautiously optimistic that our business is stabilizing earlier and at a higher level than we anticipated" as the economy stabilizes. He also noted that the expectation of improved sales during the current quarter is due to improvements across the board, from all types of customers in all geographies, and not just because of one deal or one customer.

"We are cautiously optimistic about the next two quarters, and overall we feel better. We do not see too many cases where service providers are planning to cut capex. We actually see a lot of them talking about new projects to generate revenues," Baharav stated in response to questions from analysts, though he noted that Amdocs isn't seeing much in the way of major transformation projects again just yet.

The CEO noted that managed services and sales to the cable operator market have been particularly strong recently, and that he expects that trend to continue next year.

Amdocs isn't the only company seeing signs of recovery. Late Thursday JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) announced sequential improvements in its revenues and gross margins for its test-and-measurement and optical-components businesses, and provided an upbeat revenues forecast for the final three months of the year that exceeded analyst expectations. Its stock is up by 33 cents, more than 5.4 percent, today. (See JDSU Reports Q1.)

Amdocs is also looking for ways to grow its business further -- Baharav noted that making further acquisitions is still a top priority for his company. The company has expanded its portfolio and capabilities with a number of acquisitions during the past few years, the latest of which is the $50 million purchase of Dallas-based application server specialist jNetX Inc. . (See Amdocs Buys jNetX Amdocs to Buy ChangingWorlds, Amdocs Provisions $45M for JacobsRimell, and Amdocs Continues Spending Spree.)

Amdocs says the deal "accelerates Amdocs' position in the SDP market by combining jNetX's industry leading offering with Amdocs' existing customer experience solutions and service delivery capabilities."

Heavy Reading analyst and SDP specialist Caroline Chappell says the move was critical for Amdocs as it will fill an important hole in its portfolio. But it was also very important for jNetX.

"This is good news for both companies. For Amdocs, not having a telco application server capability was a glaring hole in its portfolio, weakening it against Alcatel-Lucent (NYSE: ALU), Hewlett-Packard Co. (NYSE: HPQ), Oracle Corp. (Nasdaq: ORCL), and Telcordia Technologies Inc. . For jNetX, the danger was that they could have been bought by a company with an existing NGIN [next-generation intelligent network] platform that would have shut them down. Both Ericsson AB (Nasdaq: ERIC) and Nokia Siemens Networks have partnered with jNetX, but both also have other app servers/NGIN platforms, for example," says Chappell.

By acquiring a standards-based technology in this area, Amdocs has "sent a strong signal to the market -- a market that has long tried to marginalize JSLEE [Java Service Logic Execution Environment]," notes the analyst. (See AlcaLu & HP: SIP Can Wait.)

"The acquisition pits Amdocs head-to-head with Alcatel-Lucent, which has also recently embraced JSLEE, and which publicly stated it sees the NGIN application server as strategic. Operators are acquiring NGIN apps servers ahead of SDPs, and if vendors lose the operator on the platform side -- for example, if they go to Oracle or jNetX plus a systems integration partner -- they lose the follow-on SDP and OSS/BSS transformation business too," says Chappell.

And that's exactly what's been happening. "The network equipment providers have been losing business to the JSLEE vendors, particularly jNetX, which went live with one customer each month during the first half of 2009, which is a great performance for a small company," notes Chappell, who says it's yet to be seen exactly what Amdocs will do with jNetX.

What's clear, though, is that Amdocs, along with AlcaLu, HP, and others, regard Java-based application server capabilities as a clear differentiator in the market, and in Amdocs's case, it hasn't been afraid to splash some cash in order to stake its claim to be a vendor partner for operators developing their next-generation service development capabilities.

— Ray Le Maistre, International News Editor, Light Reading