Amdocs Opts for Growth Investments

Amdocs Ltd. (NYSE: DOX) has just reported its full-fiscal-year results, which show the company has increased its revenues by 4.2 percent to US$2.98 billion, and its net income by 5.1 percent to $343.9 million, in line with its expectations. But it's the company's earnings outlook, and its plans for the coming few quarters, that has attracted attention.

Amdocs says it expects some "pressure on profitability" while it invests in "training, knowledge transfer and productivity efforts as we continue to rebuild momentum in the wake of the recession." The company is also spending money on current "customer-centric initiatives," and may need to incur some "up-front expense" to capitalize on "a highly strategic emerging markets sales opportunity" during the current quarter. In addition, some work at Clearwire LLC (Nasdaq: CLWR) has been suspended "due to a change in the customer's business priorities," though Clearwire recently took a different angle on developments in its back office. (See Clearwire Cuts as It Hunts for Funding and Clearwire's SPIT Stress.)

All of which means Amdocs is expecting its fiscal 2011 first quarter earnings to come in below Wall Street's expectations, news that shaved 8.7 percent off the Service Provider Information Technology (SPIT) vendor's share price Thursday, when it dipped $2.62 to $27.38.

Why it matters
Amdocs is one of the major SPIT vendors, so its financial fortunes are something of a bellwether for the telecom software sector in general. Its share price may have taken a hit, but incoming CEO Eli Gelman, who takes over as CEO on November 15, is laying the ground for future growth. There may be short-term pain for Amdocs investors, in terms of lowered expectations, but if the company gets its investment strategy right then those same investors might be rewarded in the mid- to long-term. And it's not like Amdocs is preparing for a dip into the red – it's expecting earnings per share of $0.34-$0.45 for the first quarter of its 2011 financial year, and its revenue range of $760 million to $780 million is in line with Wall Street's outlook. This doesn't spell bad news for the telecom software, service creation, and professional services market.

For more
Amdocs has been expanding its portfolio and picking up new business, as well as flexing its legal muscle. Some recent highlights include:

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