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Test & Measurement

Revenues Ramp at Test Vendors

Increasing levels of development by vendors and a ramp in capital expenditure by carriers is having a positive impact on the financials results of test and measurement firms, with JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) and Sunrise Telecom Inc. (Nasdaq: SRTI) the latest to benefit. (See Infonetics Reports on Capex.)

Acterna boosts JDSU
Optical systems vendor JDS Uniphase announced its first-quarter results Wednesday, its first earnings report since it completed the acquisition of test firm Acterna. (See JDSU Releases Q1, JDSU Sells More, Cuts More, and JDSU Buys Into Testy Market.)

According to JDSU's CEO Kevin Kennedy, the firm achieved "significant gross margin improvement driven by the strong performance of our recently acquired Communications Test and Measurement business." The gross margin of 32 percent was the company's highest in more than three years, he noted in a prepared statement.

With the former Acterna contributing to about two of the period's three months, the test and measurement unit delivered revenues of $95.4 million, 37 percent of JDSU's total, and an operating profit of $19.3 million.

Those numbers will have included sales of the unit's video test products, which have been sold to a number of Tier 1 carriers this year, including Telefónica SA. (See Acterna Puts Video to the Test, JDSU Struts at BBWF, and Telefónica Prepares for IPTV Test.)

JDSU also stated that second-quarter revenues (to December 30, 2005), including a full quarter's contribution from the test unit, would be between $300 million and $320 million, ahead of analysts' average expectations of $296.6 million.

But with JDSU's overall net loss widening to 4 cents per share, the firm's share price dipped by 17 cents, more than 7 percent, this morning to $2.17.

Despite that, Citigroup analyst Michael Genovese is upbeat. In a research note issued this morning he noted the "strong results" from the test unit, and is "encouraged by the solid results and strong guidance," adding that "management is taking all the right steps to put a profitable, sustainable model in place."

He also notes that the final three months of the calendar year are historically the strongest for Acterna sales.

However, the analyst adds that JDSU is "in the midst of a major business overhaul and it will still take several quarters to deliver the significant operating model improvements that may be required to move the stock sharply higher."

Cloud masks Sunrise's shine
Sunrise has had a mixed week. After the markets closed on Monday it postponed its third-quarter results announcement, which had already been put back from last month. The reason? The vendor is still completing a "special investigation into certain transactions and issues involving its sales office in Korea," where the general manager has, according to the firm, been "terminated and replaced." Wow… (See Sunrise Postpones Q3.)

While such news would have sent investors running for cover in years past, the telecom world is almost blasé about announcements of this sort, and Sunrise certainly softened the blow by releasing some preliminary numbers. It expects third-quarter revenues to be between $16.5 million and $17 million, ahead of average analyst expectations of $16.2 million, with a net loss of about $1.5 million, about half of what analysts are expecting.

That news helped to stabilize the firm's share price, which lost just 3 cents on Tuesday, closing at $2.32. Currently it stands at $2.30, up 3 cents today.

Sunrise won a major deal with an unnamed RBOC customer early this year to supply video test equipment for the carrier's new fiber access rollout. (NYSE: SBC) and (NYSE: VZ), both of which are building out new fiber access networks, are Sunrise customers.

The vendor says the deal is due to have a moderate revenue impact this year, but that a "strong ramp in unit shipments" is expected early to mid-2006.

EXFO, Ixia, Tollgrade boost revenues
Other test vendors to have announced their financials recently include EXFO (Nasdaq: EXFO; Toronto: EXF), Ixia (Nasdaq: XXIA), and Tollgrade Communications Inc. (Nasdaq: TLGD).

EXFO reported a 30 percent increase in annual revenues to $97.2 million, and cut its annual net loss to $1.6 million, down significantly from the previous year's $8.4 million. (See EXFO Reports Q4, Full Year.)

And since it announced those numbers on October 20, EXFO revealed a major, multimillion-dollar win at Deutsche Telekom AG (NYSE: DT), where it will be the sole supplier of fiber test equipment for the carrier's fiber-to-the-node rollout. (See DT Selects EXFO and DT Flings Billions at Fiber Access.)

That news, issued on November 2, sent the firm's stock up more than 6 percent to $4.71, which is still its current price.

Ixia, on the other hand, has seen its share price suffer, despite reporting record quarterly revenues of $42.1 million and an EPS of 13 cents from net income of $9.1 million. (See Ixia Reports Record Q3.)

Ixia's numbers, released after the market closed on October 20, didn't meet analyst expectations, with the firm saying some large orders were coming in more slowly than previously anticipated. As a result, fourth-quarter revenues will likely be flat with the third quarter. The stock fell by more than 26 percent the following day to $10.25, but it has since regained some ground and today stands at $11.65.

Tollgrade fared better, as it posted revenues of $16.8 million, up 23 percent on a year earlier, and net income of $1.6 million giving an EPS of 12 cents. Analysts had expected an EPS of 4 cents from revenues of $14.5 million. That news sent the stock up nearly 14 percent to $9.78 on October 20, and today it stands at $10.24.

— Ray Le Maistre, International News Editor, Light Reading

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