FTTx Takes EXFO out of the Red

The surge in demand for FTTx test tools has helped EXFO Electro-Optical Engineering Inc. (Nasdaq: EXFO; Toronto: EXF) move into the black in its second quarter (see EXFO Breaks Even in Q2).

The test system vendor recorded a tiny net profit of $9,000 from sales of $23.1 million, which were up 37 percent year-on-year and up 7 percent sequentially (see EXFO Increases Sales in Q1), figures that were roughly in line with analyst estimates.

Key to EXFO's recent growth has been its business with Verizon Communications Inc. (NYSE: VZ), which has an aggressive fiber access rollout schedule (see Verizon Expands FTTP Plan). In the second quarter, Verizon accounted for 21.4 percent of revenues, though this percentage is expected to fall as EXFO's revenues climb during the rest of the year, said CEO Germain Lamonde in a conference call earlier this week.

He added that Verizon has been a 20 percent-plus customer in three of the past four quarters.

The CEO said this, and other FTTx test system business, had given EXFO the leading market share in that particular segment, citing Frost & Sullivan research that put EXFO top of the pile in terms of sales in 2004.

The company is set to benefit from another large North American fiber rollout program, as SBC Communications Inc. (NYSE: SBC) is also set to use EXFO's FTTx test tools, though Lamonde couldn't say when revenues from that account would hit the firm's books (see EXFO Bags FTTP Test Deal and SBC Sheds Light on 'Lightspeed').

The recent revenue growth is set to continue for the rest of the year, added the CEO, with revenues in the third quarter expected to be between $23 million and $26 million, with earnings falling between a net loss of 2 cents and a net profit of 1 cent per share. The average analyst forecast is for earnings of 2 cents from revenues of $23.95 million.

The CEO also said EXFO was still in line to see annual revenues rise by at least 20 percent this year compared with fiscal 2004's $74.6 million (see EXFO Cuts Losses in Q4).

EXFO isn't the only test vendor benefiting from the ongoing FTTx boom (see Fiber Access Relieves Test Firms). NetTest deputy CEO Lars Pederson says the boom EXFO is experiencing is being felt across the whole sector.

"EXFO has had a lot of success, particularly at Verizon, but we know that Acterna Corp. and Anritsu Corp., as well as ourselves, are seeing a lot more business," says Pedersen (see Acterna Bags RBOC FTTX Test Deal and Anritsu Intros Small OTDR Modules).

He says NetTest has seen a dramatic rise in sales of its CMA5000 multitest platform, which has a number of plugin modules, including FTTx applications (see NetTest Ships Multilayer Tester). Sales of the CMA5000 in the first quarter of this year are up 100 percent compared with a year earlier, with much of that increased business related to FTTx deployments, says Pedersen.

He says those sales are predominantly in the U.S., but he can't name specific customers, though they include RBOCs, ILECs, municipalities, and contractors.

The increasing demand for FTTx test products has also led NetTest to launch a specific handheld product for the market, the CMA50, which Pedersen claims "is the only solution that does FTTx outside and inside plant testing in one platform." (See NetTest Pockets FTTx Tester.)

— Ray Le Maistre, International News Editor, Light Reading

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