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EXFO Sprinkles Magic Dust

Ray Le Maistre
1/20/2009
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If you meet someone who works for test equipment vendor EXFO (Nasdaq: EXFO; Toronto: EXF), get as close as you can -- maybe some of its magic dust will rub off.

Because that dust is working wonders just now.

Among the widespread doom and gloom that surrounds the wider economy and fellow Canadian firm Nortel Networks Ltd. , EXFO is reporting increased sales, has a rising share price (as this article was written, at least...), and has just unveiled a new product that has generated positive noise from an industry analyst and a senior executive at Verizon Communications Inc. (NYSE: VZ).

Growth all around
First, the financials. On January 13 (after close of trading), EXFO reported first-quarter revenues of US$46.4 million, up $5.4 million, or 13.1 percent, from a year earlier. (See EXFO Reports Q1.)

Of that sales increase, the majority, $4.5 million, came from two assets EXFO acquired during 2008: Brix Networks and Navtel. (See EXFO Builds With Brix, EXFO Building IPTV With Brix, and Test Vendor EXFO Buys Into IMS.)

It also reported its highest-ever quarterly bookings of $52.3 million, up nearly 20 percent. Its first-quarter gross margin was 62.3 percent, its best since 2001. Net income was $5.3 million, or 8 cents per share, compared with a small net loss a year earlier.

EXFO noted that it is confident of continued growth -- it expects second-quarter revenues of "between US$45 million and US$50 million" -- even though fixed and mobile operators are "likely [to] reduce their capital expenditures in 2009," an assessment shared by Light Reading readers. (See LR Poll: Capex to Crash in '09.)

As a result, it has "implemented a series of measures to control expenses, deferred or cancelled hirings, and fine-tuned our strategies."

The following day the stock rose by 6 cents, or 2 percent.

Today, though, while the stock indexes are down as the world's banks and major industries teeter on the brink of financial disaster, EXFO's stock is up by 20 cents, nearly 6.8 percent, to $3.16 per share. The company has made no announcements.

Product watch
The new product announcement that has attracted positive comments from Light Reading contacts is the FTB-5600 Distributed PMD Analyzer. (See EXFO Analyzes PMD.)

This, the company claims, represents a "major breakthrough for characterizing polarization mode dispersion (PMD) in high-speed optical networks" that will "enable network operators to obtain a far deeper understanding of their system performance when looking to upgrade their optical networks to 10, 40, or even 100 Gbit/s."

That's quite a claim, but one that has folk interested.

Glenn Wellbrock, director of backbone network design at Verizon, notes in an email response to Light Reading: “According to EXFO, its product will provide carriers the ability to isolate and repair only the worst section(s) of fiber cable, thus extending the useful life of a specific route or provide the measurement information necessary to make decisions about fiber replacement. Bottom line, having the increased measurement granularity for fiber cable can be a very useful tool for carriers.” (See Verizon's Wellbrock: 100G Is Needed.)

Heavy Reading analyst Sterling Perrin, who specializes in optical developments, agrees that the product hits a sweet spot. It "looks interesting… PMD is a big deal for operators when moving to 40G and to 100G. When you move to higher speeds beyond 10G, PMD really starts to wreak havoc with the optical signal. The result is the viable transmission distances go down as speeds (and PMD) go up." Perrin notes that "operators need to understand the limitations of their fiber when upgrading to 40G and 100G, which this test set appears to do. It could help operators identify relatively small changes that boost the performance of the entire network. The alternative would be deploying the newest fiber when moving to 40G, but it’s clear that no one is going to do this."

— Ray Le Maistre, International News Editor, Light Reading

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