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OSS Lapse Hits Spirent

Ray Le Maistre
2/23/2006

Spirent Communications plc slumped to a 2005 loss after revenues from its service assurance unit fell by 43 percent and the OSS division was restructured to stem the losses. (See Spirent Reports 2005).

Despite CEO Anders Gustafsson's claim that the highlight of the past year has been Spirent's transformation, and not its financial performance, investors weren't so convinced, and the company's share price dipped 2.25 pence, more than 4 percent, to 50 pence, giving the firm a capitalization of £482 million (US$845 million).

First, those numbers. The company posted a 2005 loss of £41.7 million ($73 million), compared with a profit of £11.2 million ($19.6 million) in 2004.

Revenues from continuing operations (so not including the HellermannTyton Division that was sold recently) were £259.3 million, down from £287.2 million a year earlier. (See Testing's Tasty Tidbits and Spirent Unveils 2004 Results.)

And it was the service assurance division that accounted for that drop, with 2005 revenues of £42.8 million, down £31.9 million (43 percent) from 2004's £74.7 million. That slump is the result of the division's slow shift into the IP world. The division, though, underwent major restructuring, and registered only a minor operating loss in the second half of 2005 -- less than £1 million compared with the £9 million in the first half -- and is set to register a small loss in 2006 as it invests heavily in new product development. (See Spirent Cuts Back OSS Group and Spirent Reports H1.)

"In the service assurance business we changed management and cut costs, resulting in annualized cost savings of £12 million," noted the CEO, who added that new product development and launches would be the "key theme for the division in 2006."

The performance analysis division, which provides test tools to equipment firms and test labs, held firm, posting revenues of £178.8 million, just £2 million better than a year earlier after a good first half of the year and an unsteady second six months. The relative weakness in the second half was in part due to declining sales of the firm's AX/4000 ATM test platform.

Those two divisions form Spirent Communications . The company also has a "Systems" division that develops controllers for wheelchairs, scooters, and electric vehicles that contributed £37.7 million in revenues and an operating profit, both of which grew in 2005. Spirent has no plans to sell this unit.

That's not stopping the company from adopting the Spirent Communications brand as its overall corporate name, to reflect the new focus on the communications sector. CEO Gustafsson also said the firm was relocating its operational headquarters to Sunnyvale, Calif., where it will be closer to its main customers and competitors. The CEO denied, though, that this would mean any decrease in focus on Europe and Asia/Pacific, the latter being a region of particular growth potential, he added.

Those changes are part of the company's transformation. In addition, using funds from the HellermannTyton disposal, Spirent has paid off its long-term debt, filled the hole in its pension fund, and acquired two companies already in 2006. (See Spirent Buys Wireless Test Firm and Spirent Buys VOIP Test Firm.)

The two acquisitions represent two of the areas where Spirent sees strong future growth -- SwissQual brings a suite of wireless performance management tools, while QuadTex Systems specializes in VOIP system testing. Gustafsson believes Spirent can exploit QuadTex's technology to target the IMS (IP Multimedia Subsystem) interoperability and conformance test market, as "each IMS vendor has a proprietary solution at the moment. Every company has its own interpretation of the standards," so creating a need for test solutions.

The CEO said those two acquisitions are "evidence of our new strategy and financial strength" and "good indicators of what to expect in the future" from Spirent's M&A strategy in the future.

Triple play is the other target area, where the company has been pushing video test capabilities in its performance analysis business. (See Spirent Launches Tester , Spirent Latest to Tackle Video Test, and Spirent Intros Triple-Play Tester.)

— Ray Le Maistre, International News Editor, Light Reading

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12/5/2012 | 4:05:14 AM
re: OSS Lapse Hits Spirent
So Spirent's service assurance division didn't predict the demand for IP service assurance products...

Are there any other companies out there that missed the IP wave on its way to the beach?
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