M&A Disrupts Spirent's Order Book

Spirent Communications plc is feeling the effects of the telecom equipment sector consolidation process in terms of reduced orders from some of the recently merged vendors, the test technology vendor has revealed.

As part of its earnings presentation to investors and analysts late last week, Spirent broke with convention and identified some of the leading customers for its broadband products, which contribute to the company's largest business unit, Performance Analysis. (See Spirent Reports H1.)

It identified its six biggest customers for its broadband test products, which includes its flagship TestCenter platform that's used to test telecom equipment in vendor and carrier labs. Spirent compared the value of orders from those companies during the first half of this year with the same period a year earlier. (See Spirent Updates TestCenter.)

That comparison showed that, while orders from Juniper Networks Inc. (NYSE: JNPR) and Motorola Inc. (NYSE: MOT), up 99 percent and 71 percent respectively, increased significantly, the increase was markedly lower from other vendors. Increases at Nokia Networks were only 32 percent, and Alcatel-Lucent (NYSE: ALU) actually logged a decrease of 29 percent. (See table.)

Table 1: How Vendor M&A Has Hit Spirent's Broadband Test Order Book

Customer	Change in US$ orders, H1 2007 vs H1 2006
Cisco	20%
Alcatel-Lucent	-29%
Motorola	71%
Juniper Networks	99%
NTT	6%
Nokia Siemens Networks	32%
Source: Spirent

Executive chairman Edward Bramson, who took charge of the British company earlier this year, having wrested control of the vendor in late 2006, noted there was "weakness where companies are merging," and gave a more detailed view of what's happening at AlcaLu. (See Spirent Spikes CEO and Spirent Suffers Boardroom Coup .)

"We had good positions with both [Alcatel and Lucent]," said Bramson, but now "Lucent people are sitting on their hands while they figure out what the Alcatel people want to do."

Bramson's CFO, Eric Hutchinson, added, "Alcatel-Lucent is still figuring out its priorities." That's an assessment that reflects AlcaLu's first-half woes. (See Alcatel-Lucent Slumps on Q2 Loss , AlcaLu's Russo: We're Under Attack!, and Merger Tears Into AlcaLu's Sales.)

Spirent has had a tough time of it too, though. It's in the midst of a Bramson-inspired overhaul, involving an already completed "Operating Review" and an ongoing "Strategic Review," which have seen the company focus more on its growth prospects and even sell off a relatively recent acquisition that had failed to deliver on expectations. (See Spirent Faces Further Upheaval , Spirent Makes Deeper Cuts , and Spirent Loses on Wireless Unit Sale.)

Those prospects lie in the company's Performance Analysis division, which, during the first six months of 2007, generated £80.6 million ($162 million) in revenues, more than 70 percent of the company's total revenues of £114.2 million ($230 million). Spirent's operating profit during the first half was just £5 million ($10 million).

A breakdown of Performance Analysis shows that wireless products delivered $49.8 million in revenues, while the Broadband unit generated revenues of $108.8 million, of which $33 million came from TestCenter sales.

Spirent expects to begin reaping the benefits of its Operating Review during the second half of this year, when it expects revenues to be flat or slightly higher than the first half and "a significant improvement" in operating profits.

The company has denied suggestions that it is being restructured ahead of a sale. (See Spirent: We're Not Prepping for Sale.)

— Ray Le Maistre, International News Editor, Light Reading