Growing demand in Europe for 4G mobile phones and a rebounding US economy will be very encouraging news for this small but sturdy telecom, notes Rob DeFrancesco of Tech Stock Prospector.
I am sure the management team at Acme Packet (APKT) will be very happy to see 2012 come to an end. This has really been a lost year for the company, with revenue expected to be down more than 11%. Blame sharp spending pullbacks from two key customers—AT&T (T) and Verizon (VZ)—for the bulk of the poor performance.
On the latest earnings conference call, CEO Andy Ory said he is confident that Acme Packet’s financial results and market share will improve when North American Tier One service provider spending resumes. The recent CapEx news from AT&T was a positive sign that the dollars will begin flowing again in the coming year.
For 2013, analysts on average look for Acme Packet’s revenue to rebound nearly 10%. That level of growth isn’t going to win any awards, but it will show institutional investors that Acme Packet is back on the growth track. And it will help reestablish some management credibility.
Ory is an optimistic guy. There is nothing wrong with hoping spending levels will improve. But investors eventually tune out when management keeps promising a turnaround and the stock keeps falling.
One bright spot for Acme Packet has been the European service provider segment. On the earnings call, Ory said some of Acme Packet’s strongest and most strategic relationships are with Tier One service providers in Europe. Speaking in late November at the Credit Suisse tech conference, Ory sounded optimistic that European carriers will continue to spend next year.
According to Ory, Acme Packet is seeing acceleration of 4G LTE planning and deployment across Europe. He says the EMEA region leads all regions when it comes to engagements for LTE data services and VoLTE. As for SIP trunking in EMEA, spending did not take off in 2012 as expected, but Ory sees signs that demand will pick up throughout next year.
Ory also points to growth potential in the APAC market, which is home to about 65% of the world’s total population. There are more than 3 billion mobile subscribers and 150 mobile operators in this region. Acme Packet has been investing in the APAC market, recently bringing on senior sales and business development leadership to manage growth in the region.
The recent release of the Net-Net 6300 means Acme Packet is well positioned on the product front for a recovery in service provider spending. The 6300, designed to handle bandwidth-intensive services and applications, features a 70 Gbps network processor and the industry’s first 10 Gbps interface designed to deliver a system throughput of up to 40 Gbps, more than 8 times greater than the previous generation of systems.
The 6300’s full 64-bit symmetrical multiprocessing capabilities and quad-core CPU design are engineered to deliver more than 2x the signaling performance of comparable SBC platforms.
The solution can support up to 200,000 signaled sessions, 80,000 media sessions, and 1 million subscribers simultaneously. With up to 5 times session capacity than comparable platforms, the 6300 is designed for emerging services that are expected to generate high subscriber counts and call volumes down the road—including VoLTE, rich communication suite (RCS), and video calling.
In addition, thanks to its unique architecture, the 6300 can lower service provider capital and operational costs by reducing power, cooling, cabling, and rack space requirements—including potentially reducing the number of managed SBC elements in the network by as much as 75%.
In the middle of November, Acme Packet announced that MetroPCS (PCS) had deployed the company’s Net-Net Session Director to support the world’s first commercially available VoLTE service (launched in August), as well as the recent launch of RCS. The solution provides extensive SIP normalization, mediation and Internet working functions.
Acme Packet management expects VoLTE rollouts to help support growth over the next two years, starting in the second half of 2013. It’s only natural that the 100 largest service providers worldwide are expected to drive this transition to VoLTE. It helps that Acme Packet counts 89 of these 100 carriers as customers.
For now, most big investors remain cautiously optimistic on Acme Packet and its rebound prospects. In the third quarter, the company’s two largest holders—Fidelity and Wellington Management—both trimmed their positions by a small amount. But T. Rowe Price became a Top Five holder by boosting its stake by 27%.
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