Test & Measurement

Spirent Faces Further Upheaval

The new board at Spirent Communications plc announced today it will unveil a companywide review before the vendor's May 9 annual general meeting.

The new board, which took over in dramatic fashion at the end of 2006, wants the company to generate more profit. Spirent today reported 2006 revenues of £271.6 million (US$533 million) -- substantial for a company that's focused on one of telecom's niche sectors, if slightly below analysts' expectations. (See Spirent Suffers Boardroom Coup and Spirent Reports 2006.)

In a statement released this morning, the company's new chairman, Edward Bramson, said the "outlook for Spirent's financial performance in 2007 and beyond will be more affected by the actions resulting from the Board's review than by any foreseeable market developments. The major purpose of the Board's review is to decide where to focus our resources and how to be the most efficient and effective competitor in our chosen areas."

In 2006, profit before tax and one-time charges was just £14.3 million ($28 million). After those one-time charges -- restructuring costs of £9.1 million ($17.8 million) associated with 250 job cuts, and goodwill impairments of £46.8 million ($91.8 million) associated with the firm's struggling service assurance division and the SwissQual business acquired in 2006 -- the loss before tax was £50.1 million ($98 million). (See Spirent Buys Wireless Test Firm.)

Spirent's financial report noted significant improvement during the second half of 2006. That, and news of further restructuring to come, sent Spirent's share price up by just more than 1 percent, to 61.75 pence on the London Stock Exchange .

Revenues grew 5 percent despite a number of setbacks in 2006, including the late launch of some product updates and a capex freeze at some significant carrier customers.

Last year also saw a decline in sales of Spirent's legacy Performance Analysis (lab testing) platforms -- the SmartBits router and switch tester and the AX box for testing ATM and Frame Relay gear. Orders for those products fell by more than a third to £48 million ($94 million).

Demand for the Performance Analysis division's TestCenter platform, though, ramped significantly. It is now used by more than 200 customers, up from 90 customers in August 2006. Revenues from the multiservice platform, which tests the latest Ethernet and access gear, grew to £20 million ($39.2 million) in 2006 from just £4 million ($7.8 million) in 2005. (See Spirent Updates TestCenter.)

The Performance Analysis division now also has a new leader, former Lucent executive Rob Piconi. (See Piconi Packs His Bags.)

CEO Anders Gustafsson also noted during today's earnings conference call the impact of carrier consolidation on its Service Assurance (carrier network probes/OSS) business. In a recent meeting with Light Reading, Gustafsson said the company "had to take action to stabilize that business," as the carriers that merged -- AT&T Inc. (NYSE: T) with SBC, and Verizon Communications Inc. (NYSE: VZ) with MCI -- accounted for about 70 percent of that division's revenues. (See Spirent Cuts More Jobs.)

Today, Gustafsson said that sales to customers involved in M&A activity were down 12 percent on average, while sales to those unaffected by acquisitions were, on average, up by 7.5 percent.

Now the focus in Service Assurance is maintaining the current breakeven position and marketing new products, such as the SmartSight triple-play assurance solution that is being deployed by Canadian carrier Telus Corp. (NYSE: TU; Toronto: T). (See Spirent Wins at Telus.)

Gustafsson said that deal "was a shot in the arm from a confidence perspective" for the beleaguered OSS team.

The CEO also told investors today that, despite tough market conditions, revenues would grow modestly in 2007, while investments into new products would continue.

The focus during 2007 will increasingly be on further expansion in Europe, where sales grew 36 percent in 2006, and Asia/Pacific, which grew 33 percent last year following deals with major carriers such as China Mobile Communications Corp. . (See China Mobile Picks Spirent.)

In technology terms, Spirent will continue to develop products focused on testing IP Multimedia Subsystem (IMS), IPTV/triple play, Ethernet, and wireless technologies, where the company is building on the SwissQual acquisition. (See Spirent Evaluates Mobile Video.)

— Ray Le Maistre, International News Editor, Light Reading

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