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Test & Measurement

Spirent Gets Imperfect

Test and measurement vendor Spirent Communications plc has added to its product arsenal with yet another specialist acquisition, the company announced today as it revealed interim results for the first half of 2006. (See Spirent Buys Imperfect and Spirent Reports H1.)

Spirent is buying Burlington, Mass.-based Imperfect Networks , which develops automated testing equipment that generates denial of service attacks, hacking attacks, and so on, for an initial $4 million in cash, plus $4 million more if certain milestones are met in 2007.

Imperfect, which has 11 staff, has been selling its ThreatEx product exclusively through Spirent since 2005. ThreatEx is used by equipment vendors to test their products against security attacks, and by enterprises testing their networks against potential attacks.

Imperfect is Spirent's fourth acquisition this year, a spree funded from the proceeds of a business unit sale announced late last year. (See Testing's Tasty Tidbits.)

The vendor's M&A campaign is part of its strategy to focus on the communications sector and beef up its presence in several key areas, one of which is security. (See Spirent Buys Test Partner, Spirent Buys VOIP Test Firm, and Spirent Buys Wireless Test Firm.)

That strategy also involves increased R&D spending on new product developments and an operational restructuring to reduce costs. That process has been particularly, though not exclusively, focused on Spirent's service assurance (network monitoring software) division, which has been playing catch-up as the telecom sector shifts towards IP-based networks and services. (See Spirent Cuts More Jobs, OSS Lapse Hits Spirent, and Spirent Cuts Back OSS Group.)

That restructuring and a flattish market, not helped by major merger activity among some of Spirent's key customers, has led to some disappointing trading updates. (See Spirent Slumps on Update.)

But there are some positive signs for Spirent. Its first half revenues are up more than 9 percent to £138.2 million ($261 million), and the company recorded a first half profit (before tax and one-off items) of £6.1 million ($11.5 million), compared with a small loss a year earlier. Even the service assurance division reported a small operating profit compared with a £9 million ($17 million) loss a year earlier.

And although CEO Anders Gustafsson believes the current "variable market conditions" will continue in the second half of the year, he expects 2006 revenues to show a "modest increase" over 2005.

Another bright point is the uptake of the company's TestCenter switch and router testing platform, which now has more than 90 customers, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks Inc. (NYSE: JNPR), Lucent Technologies Inc. (NYSE: LU), Motorola Inc. (NYSE: MOT), and Sprint Corp. (NYSE: S) (See Spirent Updates Test Center.)

All in all, the news cheered investors, and Spirent's share price ended the day up 1.75 pence, more than 4 percent, at 43.25 pence on the London Stock Exchange .

That continues a recent trend: Spirent's share price is up about 30 percent since the beginning of August. The reason? Given the company's cost realignment, its new product development, better prospects for 2007, and a net cash position of £146.3 million ($276 million), analysts believe the company might be due for a takeover bid.

Light Reading Insider analyst James Crawshaw, who follows Spirent, notes that "stock market commentators have long talked about Agilent Technologies Inc. (NYSE: A) buying Spirent."

Agilent, one of Spirent's key rivals, "certainly has the financial muscle to do this," adds Crawshaw, who says the deal would be a "nice fit" despite a "bit of overlap in broadband performance analysis." That's true especially at Spirent's current market capitalization of £403 million ($762 million), he says.

— Ray Le Maistre, International News Editor, Light Reading

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