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VOIP Boom Boosts Ulticom

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News Analysis
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A ramp-up in demand from its equipment vendor customers helped signaling software company Ulticom Inc. (Nasdaq: ULCM) easily beat analysts' estimates for its second fiscal quarter (see Ulitcom Posts Q2 Profit).

The company is benefiting from increasing demand from key customers such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERICY), Siemens AG (NYSE: SI; Frankfurt: SIE), Sonus Networks Inc. (Nasdaq: SONSE), and UTStarcom Inc. (Nasdaq: UTSI), as those vendors capitalize on growth in the wireless and IP telephony markets, particularly in developing markets such as China.

Ulticom's figures, which were released after the market closed on Wednesday, show just how much the market has picked up in the past year. It reported revenues of $16.1 million, up 22 percent from the first quarter's $13.2 million, and up a whopping 71 percent compared with last year's $9.4 million.

Second-quarter net income was nearly $4 million, or 9 cents per share, easily beating analyst estimates of 5 cents per share. That profit figure was up 83 percent from $2.2 million (5 cents per share) in the prior quarter, and up 214 percent from last year's $1.3 million (3 cents per share).

Those figures sent Ulticom's share price racing up by 80 cents, nearly 8 percent, to $11.30 in pre-market trading this morning.

Lehman Brothers analysts, who had predicted sales of $13.8 million for the second quarter, lifted their estimates for 2004 and 2005 on the back of the "exceptional quarter." In a research note they pinpointed mobile roaming and softswitching as key growth drivers, in addition to growth in developing markets such as China, India, and Russia. The growing demand for softswitching software is being driven by the move into VOIP by major cable companies, and the increasing deployment of Class 5 replacement systems, a trend noted recently by industry watchers and players (see Infonetics: VOIP Market Up 10% and Sonus: Whew!).

And the Lehman team believes Ulticom can continue to benefit from these trends. They say the company's SignalWare product line is well placed to benefit from the ongoing growth in wireless, as the software is key in enabling roaming and the provisioning of pre-paid and messaging services. It also has "a significant presence in the convergence or softswitch market at the center of the transition from circuit to packet networks both in wireline, wireless, and now cable networks."

— Ray Le Maistre, International News Editor, Light Reading

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