Los Angeles Business Journal

Investors Pull Plug on Network Equipment Maker

TELECOM: Ixia shares fall after company reduces first quarter guidance. By Howard Fine Monday, April 22, 2013

It’s been a tough month for shareholders of Calabasas network equipment maker Ixia.

On April 4, Ixia revealed in its annual report that it had restated its last two years of earnings to add in revenue from a warranty contract. Ixia had originally planned to book the $4 million in revenue in the first quarter of this year; as a result of the shift, the company lowered its first quarter guidance.

News like this would ordinarily cause a blip in the stock, and, sure enough, Ixia’s stock fell 12 percent over the next two trading days, closing at $17.79 on April 6.

Ixia’s share price has since declined even more. It fell 11 percent for the week ended April 17, closing that day at $16.88, making the stock one of the biggest losers last week on the Business Journal’s Stock Index. (See page 62.)

But analysts said the ongoing drop is due to a slowdown in capital spending by telecom companies. Ixia makes testing equipment and provides technical support; customers include telecom companies, network providers and the like.

“An air of caution has drifted over most of the telecom sector,” said Josh Beck, research analyst with Pacific Crest Securities in Portland, Ore. Beck noted that Verizon Communications Inc. last week reported that its first quarter capital expenditures were flat year over year; analysts had been expecting an increase.

Another analyst sees providers postponing equipment purchases.

“Our checks indicate service providers are willing to let their networks run hotter than usual in order to postpone purchases,” Paul Robison, analyst with the San Francisco office of Wunderlich Securities of Memphis, Tenn., wrote in an industry survey.

Robison said providers might be trying to shift more resources to their wireless networks.

“While this uncertainty may not have multiquarter duration, it is clearly a bigger factor than was thought a few weeks ago,” he said.

As for the restatement, Beck and Robison said the long-term impact on Ixia’s stock should be minimal.

“Booking warranty revenue can be an opaque area for accounting and there probably was a shift in interpretation by their auditor, PricewaterhouseCoopers,” Beck said. “But it’s a small percentage of overall revenue and it shouldn’t be a recurring issue.”