Spirent Looks to LTE in Testing Times
Spirent reported first-half 2009 results today that benefited in a big way from the U.S. dollar-to-pound sterling exchange rate. And despite the challenging market, the vendor said it maintained profitability and gained market share.
The test company posted an operating profit of £24 million (US$40 million) for the first half of 2009, up 14 percent from £21 million ($35 million) in the same period last year. Revenues for the first half were £139.1 million ($235 million), up 15 percent compared with £120.5 million ($204 million) last year. (See Spirent Sees Steady 2009 and Spirent Keeps Cool.)
But the favorable exchange rate masks a different picture: At constant currency rates, revenues were down 10 percent year-on-year and operating profit was down 16 percent year-on-year.
Spirent CEO Bill Burns said on the conference call with media and analysts today that equipment vendors had reduced overall R&D spending by 13 percent in legacy equipment, particularly in the U.S., and that there were some order deferrals to the second half of this year. He described customers as "cautious" in making spending decisions in the current economic conditions.
But the reduced spending in the U.S. was offset by "solid Asia/Pac performance," he explained.
A significant contract win for Spirent recently was with China Telecom Corp. Ltd. (NYSE: CHA) for CDMA test equipment as the operator rolls out its 3G network and deploy CDMA2000 EV-DO Rev. B in the country.
"In 2009, we're capitalizing on the opportunity that the Asian market is still spending money," he said.
Looking ahead, Spirent sees LTE as a big driver for growth, considering its position in CDMA and UMTS network and device testing. The company said LTE infrastructure test demand was strong and that it would deliver its first LTE device test system in the second half of this year. In particular, the company said it will work with its customer Verizon Wireless and its suppliers to make its CDMA network and devices "LTE ready" so that they can support multimode operation. (See Spirent Eyes Wireless, New CEO and Spirent Tests LTE.)
In Spirent's view, the LTE operator leaders are Verizon, which is expected to roll out LTE in the first half of 2010, and NTT DoCoMo Inc. (NYSE: DCM) and AT&T Inc. (NYSE: T), "all of which we have strong relationships with in the area of device testing," according to Burns.
Burns reckons that Spirent is well placed in the LTE testing market not only because it has customers that are among the technology's trailblazers, but also because of the way operators will choose to deploy the mobile broadband technology. In the early rollouts, LTE will be deployed only for data services and only in specific locations so that the legacy CDMA and UMTS networks will be needed for voice services as well as data outside LTE coverage areas. And this will create a need for backwards compatibility testing, says Burns.
"The advantage [for Spirent is] the embedded base makes a barrier of entry to competitors and lets us evolve our CDMA and UMTS test solutions into LTE and do this backwards compatibility testing," he says.
Generally, Spirent's focus for growth is in the medium- to long-term time frame. In addition to next-generation wireless technologies, the other areas where it is targeting its R&D spending include high-speed broadband and Ethernet; data center, virtualization, and cloud computing; and applications that drive broadband and data use.
In Ethernet, the company plans to launch its 40G and 100G test solutions on the Spirent TestCenter later this year. (See Spirent Tests Ethernet Interop and Spirent Bolsters TestCenter.)
The company said the second half of 2009 will be much like the first half in terms of market conditions and that it will continue to keep a tight grip on costs for the rest of this year. Spirent cut costs by £4 million in the first half of this year and another £1.7 million in savings is expected in the second half.
— Michelle Donegan, European Editor, Unstrung