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Optical/IP

Sandvine Profit Jumps

Deep packet inspection (DPI) vendor Sandvine Inc. swung to a record profit on a 171 percent increase in revenues during the second quarter. (See Sandvine Reports Earnings.)

Sandvine reported second-quarter earnings of $10.3 million Canadian (US$9.7 million) on revenues of C$20.0 million (US$18.9 million). This compared to a loss of C$500,000 (US$473,200) on revenues of C$7.4 million (US$7.0 million) in the year-ago quarter. The company's record revenues also marked Sandvine's tenth consecutive quarter of revenue growth.

Product gross margins stood at 81 percent, due to "a significant amount of revenue from follow-on standalone software sales," Sandvine CFO Scott Hamilton said on the company conference call this morning.

Sandvine, which has historically been stronger with MSO customers, has also made an increased push into the telco space. While the overwhelming majority of the company's revenues still come from cable companies, according to Hamilton, most of its new customers are telecom operators.

On the conference call, CEO Dave Caputo said, "We have added another Tier 1 customer in the quarter, and have added seven new customers overall. Five of those customers were DSL providers or telcos, so our growing momentum in that market continues." Caputo would not name the Tier 1 customer.

Sandvine also has been adding functionality to its product portfolio, both through in-house R&D and acquisitions. Caputo said, "We have been and continue to be on the lookout for companies that offer a good strategic, technological, and most important, a cultural fit."

That search resulted in the purchase of two software vendors last month, and an announced stock offering that could lead to further acquisitions. (See Sandvine Bags Two in Shopping Spree, Sandvine Acquires Two, Sandvine Closes Buy, and Sandvine Announces Offering.)

Over the past several months, there have been numerous signs that service providers -- especially Tier 1 service providers -- are looking to use DPI as a way to manage how traffic flows over their networks. Examples include the recent announcement that Sandvine competitor Ellacoya Networks Inc. has been deployed in BT Group plc (NYSE: BT; London: BTA)'s retail network, as well as rumors that Verizon Communications Inc. (NYSE: VZ) has issued an RFP for DPI technology. (See BT Picks Ellacoya and Double Down on DPI?)

This is an opportunity Caputo hopes his company can take advantage of. "While the vast majority of major Tier 1 telcos worldwide have yet to make a decision on an intelligent broadband network solution, we remain constantly optimistic that at least one will begin deploying the Sandvine platform in fiscal year 2007."

Part of the reason Sandvine is optimistic it can score with major deployments with Tier 1 carriers is its next-gen PTS 14000 product, which enables 10-Gigabit Ethernet DPI and can scale to support 80 Gbit/s.

"There is a real need among major service providers for a proven 10-Gigabit Ethernet policy-based DPI solution that can scale to support their networks' largest aggregation points," Caputo said.

— Ryan Lawler, Reporter, Light Reading

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