Cart (0)
business newsThe Hidden Companies (and Profits) Behind Network Equipment Providers
By
Fil Zucchi
Apr 11, 2011 9:30 am
Testing companies simulate and test the functionality of hardware and software as demand for bigger-better-faster networks increases. Here, the key players in the "testing" space.
PRINT
 |
|
I recently sold RedKnee and cut back significantly on Allot (see my post on Buzz & Banter), and while I believe this space continues to have structural tailwinds behind it, the sprint stage is over; from here I’m adopting a much more “realistic view” of these stocks future gains.
So what group to turn to for the next investment opportunity? There’s no lack of coverage of the poster-children of the “networking” story, so there’s little more I can write on the F5 Networks (FFIV) and Junipers (JNPR) of the world besides stating the obvious: They are much more tempting stocks now than they were 20-40% higher. But on the “test benches” of these companies’ products there may sit the next batch of “under the radar” profits.
One of the inevitable by-products of the exploding demand for better-faster-bigger networks is the increase in their complexity. The hurdles of migrating to 40 and 100GB optical transport platforms, introducing fiber and microwave backhaul transmission to replace copper, and shifting away from CDMA/GSM and xG toward LTE -- just as a few examples -- are magnified by having to be implemented while these systems are up and running, and serving millions of customers who don’t take kindly to service glitches.Enter the “testing” companies. These are outfits which provide hardware/software solutions to the network equipment providers, to simulate and test the functionality and reliability of everything from routers to handsets. Many of these companies have been around for a long time and have gone up and down on their individual merits for years; but what I suspect may be different for them at this moment in time is the simultaneous convergence of new network platform roll-outs, the explosion of end user network access, and the increase in quantity/quality/complexity of content. These events are raising exponentially the need for testing the gadgets all along the “food chain” to make sure they all work seamlessly in all environments.
If this “picture” has perked up your investment antennas, let me reset expectations a bit. As I said earlier, unlike the novel nature of the “Deep Packet Inspection” opportunity -- which brought forward a small number of niche players competing for a relatively large market -- the “testing” market is far from new and competitors have been slugging it out for years. The opportunity I see centers on timing the rising tide of network changeovers and the wave of mass “gadget” adoption. The tide won’t come in all at once and will be uneven, but my sense is that there’s a better than even chance that it will raise most “boats."
So who are the key players in the “testing” space? A recent Morgan Stanley report initiating coverage on Spirent (SPNUF) highlights also Agilent (A), Anite PLC (ANTUF), Anritsu Corp. (AITUF), Ixia (XXIA), and JDS Uniphase (JDSU). I would also put on your radar VanceInfo Technologies (VIT), NetScout Systems (NTCT), Exfo Inc. (EXFO) and Opnet Technologies (OPNT), though some of the latter are not exactly or entirely in the testing space. Each of these companies has attributes (from growth rates, valuation, market focus, etc.) which some investors may view as strengths while others may view as risks. For example Ixia is one of the fastest growers and purest plays on Ethernet testing, but its reliance on Cisco (CSCO) as a customer can cut both ways; and Ixia may also be suffering some disruptions from its exposure to Japan. Therefore, I hesitate to argue buying one stock over another. Much depends on your risk appetite and which subset of the network you think will require the most testing tools. In order of interest, my portfolio taste buds are focusing on Spirent, Anritsu and Anite; then Ixia and JDS Uniphase; and lastly on Agilent; but as you can see from my “lack of positions” in these names, I’m still mulling things over. As a starting point for your research, I’m reproducing below the “Mapping the Competitive Landscape” table found in the Morgan Stanley piece. And lastly, if you have access to foreign markets you will invariably find better liquidity there than in the US traded ADRs.
Click to enlarge
New! The TechStrat Report by Sean Udall. Sean provides in-depth analysis, strategies and trades across the technology sector. Take a FREE 14 day trial.
Positions in ALLT, PKT, INF.FP, BWC.CN, SVN.CN, JNPR, FFIV, CSCO.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
