Optical and access test firm EXFO buys VOIP and IMS test capabilities with the purchase of minnow Navtel

March 27, 2008

3 Min Read
Test Vendor EXFO Buys Into IMS

Canadian test vendor EXFO (Nasdaq: EXFO; Toronto: EXF) has bought VOIP and IMS test system specialist Navtel Communications Inc. , a move that further extends EXFO's portfolio beyond its core optical and access test platforms, and provides it with a number of key telecom equipment vendor relationships. (See EXFO Acquires Navtel, EXFO Tests 40 Gig, OTN, EXFO Unveils Fiber Tester, and EXFO Tests VDSL2.)

EXFO, which announced the acquisition of the Toronto-based firm after the markets closed on Wednesday, is paying C$11 million (US$10.8 million) in cash for Navtel, which sells its systems to equipment vendors and carrier labs that undertake pre-deployment testing. Navtel, which has about 35 staff, reported revenues of C$5.7 million (US$5.6 million) and a small net loss in 2007. (See Navtel Tests IMS Gateways, Navtel Intros Softswitch Test, and Navtel Enhances VOIP Analyzer.)

EXFO, which reported record full year revenues of nearly US$153 million and net income of US$42.3 million in its fiscal 2007, saw its share price rise 5 cents, more than 1 percent, to $4.36 in early trading Thursday. It expects the acquisition to be neutral to its earnings in the current fiscal year (ending September) and to add to its earnings in fiscal 2009. (See EXFO Reports Q4.)

Clearly, EXFO isn't acquiring Navtel for its existing sales, so what's behind the move? Growth and relationships, according to a presentation made to investors this morning.

EXFO believes there's a lot of growth still to come in Navtel's area of expertise -- systems that simulate services such as SIP-based VOIP, and emulate and assess the performance of network elements such as routers, switches, media gateways, session border controllers, and cable modem terminations systems (CMTSs). (See Acme Picks Navtel and Navtel Announces PacketCable Tester.)

Of the total IMS test system market, valued at US$274 million for 2007 by Frost & Sullivan , EXFO believes Navtel's capabilities addressed about half of it, or a potential US$130 million. That market is set to grow by nearly 30 percent a year during the next seven years to be worth about $1.2 billion by 2013, according to the firm's estimates.

In addition, EXFO is particularly keen to cement its relationships with leading equipment firms, which, EXFO believes, have a significant influence over carrier buying decisions. And Navtel has an impressive customer list, including: Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO), Ciena Corp. (NYSE: CIEN), Ericsson AB (Nasdaq: ERIC), Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY), Huawei Technologies Co. Ltd. , Nokia Networks , Nortel Networks Ltd. , and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) on the vendor side; and AT&T Inc. (NYSE: T), BT Group plc (NYSE: BT; London: BTA), China Telecom Corp. Ltd. (NYSE: CHA), Chunghwa Telecom Co. Ltd. (NYSE: CHT), Orange (NYSE: FTE), and Telefónica SA (NYSE: TEF) on the carrier side.

This isn't EXFO's first acquisition. In 2006 it bought the assets of DSL test player Consultronics. (See EXFO Buys, Ixia Plummets.)

The move solidifies EXFO's status as one of the telecom industry's main test equipment firms, alongside the likes of Agilent Technologies Inc. (NYSE: A), Anritsu Corp. , Ixia (Nasdaq: XXIA), JDSU (Nasdaq: JDSU; Toronto: JDU), Spirent Communications plc , and Tektronix Inc. .

— Ray Le Maistre, International News Editor, Light Reading

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