Could Aeroflex Shake Up Testing?

Small-fry might be tasty to Aeroflex, which is looking to raise money and may be up for a consolidation play

December 30, 2003

3 Min Read
Could Aeroflex Shake Up Testing?

Is the all-too-quiet telecom testing market about to get a little noisier?

A recent filing with the Securities and Exchange Commission (SEC) by microelectronics and testing giant Aeroflex Inc. (Nasdaq: ARXX) hints that the company is raising money for acquisitions and could emerge as a potential consolidator for the beleaguered telecom testing industry.

Earlier this month, Aeroflex filed a shelf offering with the SEC to periodically sell up to $125 million in debt and stock. The net proceeds will be used to pay down debt and for general corporate purposes, the company said in a statement.

Digging into this statement, analysts tracking the company think Aeroflex could well be on the prowl for more acquisitions, most likely in the wireless components and/or network test and measurement arenas.

Aeroflex made its mark selling rugged semiconductors to the defense and aerospace industries. Over the past two years via the acquisitions of IRF, a maker of testing equipment for broadband networks, and Racal Instruments, a maker of testing equipment for wireless networks, it has become a key player to watch in the test and measurement world.

”They’ve made a number of acquisitions; my assumption is they will continue down this path… Wireless components and test and measurement companies would be my hunch,” says James McIlree, analyst with CE Unterberg Towbin.

Indeed, if the company does have its sights on test and measurements firms, there are plenty to choose from, especially in the telecom arena. Optical testing specialist Digital Lightwave Inc. (Nasdaq: DIGL), whose stock price is in the sub-dollar range (see 2003 Top Ten: Explosions & Implosions), narrowly avoided eviction for failing to pay its rent this summer and has been struggling as key customers like AT&T Corp. (NYSE: T) have stopped buying (see Digital Lightwave Avoids Eviction, Digital Lightwave Keeps Sliding in Q1, and Digital Lightwave Borrows to Pay Bills).

Acterna Corp., recently out of Chapter 11, and with renewed focus on testing gear that helps carriers with OSS issues, might be worth a look. It has recently signed a juicy deal with Verizon Communications Inc. (NYSE: VZ) to install, develop, and maintain a series of OSSs for the carrier's voice network (see Acterna Addresses Workflow, Acterna's Extreme Makeover).

Not much has been heard from optical test and monitoring firm NetTest since it split off from its parent almost a year ago (see Nettest Leaves the Mother Ship).

And on the wireless testing front, carriers are slowly returning to the job of deploying 3G networks and will be looking for testing firms to check out the merits of this technology. The same goes for WLAN services, as this technology gradually breaks into the enterprise market. Light Reading’s sister site, Unstrung, covers this market in detail (see Dilithium, LineFusion Partner, Blazar Tests With Adax, Agilent Tests HSDPA, DTI Intros Test Transmitter, ATIO Tests ASQA, and IceFyre Tests 802.11 Chipsets).

It's worth noting Aeroflex is a company of some heft. It had $290 million in revenue for 12 months ending June 30 and has just broken back into profitability. By swallowing up smaller companies, Aeroflex would keep on the ongoing trend of consolidation in the test market and could become a major player.

In the telecom testing market specifically, other than the aforementioned smaller players, the industry is largely dominated by only two big players, Agilent Technologies Inc. (NYSE: A) and Spirent plc (NYSE: SPM; London: SPT). If Aeroflex started creeping onto their turf, things could get interesting.

Aeroflex did not return calls for comment by press time.

— Jo Maitland, Senior Editor, Boardwatch

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