Ixia Shows Testing Not a Bad Place to be

The tech and communications markets have been generally stable and if anything a beacon of light in the turbulent waters of the general global economy. Specifically though the testing market is doing fairly well – if you are in the right segments of course. Let’s just say circuit switched testing isn’t going to be a hotbed of growth anytime soon.

One of the players in the market Ixia, has been aggressively consolidating the space and looking to become very well-rounded in the last few years acquiring the Catapult and Agilent N2X Data Line.

Last year I explained I would watch the test vendors more closely so as to scope out future trends. You see, these companies are always on the leading edge because carriers and equipment providers need to test the new products and services they roll out. As you may recall, this past January I wrote that Ixia was raising its forecast for the quarter – and it seems this news did turn out to be a fairly accurate barometer for a good portion of the communications and technology space this year.

You may know Cisco’s gloomy outlook hammered its stock this week – and it is unclear at this point whether this news is an industry hiccup or the start of a downward trend. Some of the good tech news of the week is that Google has increased salaries across the board 10% and is giving all 23,000 employees a $1,000 after-tax bonus and Intel had good earnings and declared a dividend.

One could argue the above news is tech-neutral and for more let’s look at Ixia who just released record revenue of $70.9M for the third quarter of 2010. This is a 53% increase over the prior year and a 7% increase over the prior quarter.

This corresponds to a GAAP 7 cent loss per diluted share last year compared to a dime per share in profit per diluted share this year.

I spoke with company CEO Atul Bhatnagar yesterday and he was quite excited about the results and said demand was strong in Asia and North America and they are seeing strong demand for a variety of their testing solutions and now half of their business is outside the US.

Other reasons for the company’s growth have to do with a network upgrade cycle which is taking place in the core and edge where 10GbE is becoming 40 and 100GbE. Other drivers are multimedia applications, P2P traffic, storage over Ethernet, virtualization and the converged data center.

Asian equipment manufacturers are becoming larger customers as well since they are looking to deliver products with bullet-proof quality and as Bhatnagar says, “Need bulletproof testing tools.” Other interesting highlights are that there is strong demand for LTE testing tools but not so much for WiMAX.

Moreover, he says, “Asia is still growing, Europe is holding up and North America is inching up every quarter.”

Sone of the biggest industry challenges he says are the massive levels of convergence taking place – in the core, application space, as well as wired and wireless networks and the data center. Another important point he made was, “Every vendor must transition their networks in a methodic manner and must make sure convergence brings the proper benefits to customers.” He went on to say, “Technologies will coexist and testing tools and network architectures must evolve to allow graceful transitions.”

Perhaps the best news for Ixia and those hoping for tech innovation are the following statements from the dynamic CEO. “Ixia sells pre-deployment testing tools to engineers and these guys are creating the new products of the future. The companies we serve understand that if they don’t design the products of the future as the market completely rebounds and the strong growth starts, they could be left with a road map which is very anemic.” He continued to say that even though there are some soft spots in the market; people are still investing in the creation of new products.

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