Ixia’s recent acquisition of a close competitor turned it into the biggest company of its kind – makers of network testing devices. That would be an empty honor, but the merger promises strong growth.
Ixia manufactures devices that measure the performance of land line and wireless Internet networks. Customers such as AT&T Inc. and Cisco Systems Inc. use Ixia’s products to gauge how well Internet networks will operate when they’re inundated with mass amounts of traffic.
Ixia was tied with rival Spirent Communications Plc as the top maker of IP testing devices. Then two weeks ago, Ixia announced it would buy Agilent Technologies Inc.’s N2X Data Networks, the No. 3 provider of IP test devices. The deal, valued at $44 million, closed Friday.
It’s a big step for Ixia, which leapfrogged Spirent to become the industry leader, said Douglas Ireland, an analyst with JMP Securities Inc. in San Francisco. He said that the merger shrinks the field enough to give Ixia a real advantage in the market.
“It’s now a duopoly business, and we see a lot of potential here,” said Ireland, who has a “buy” rating on the stock.
The N2X acquisition follows Ixia’s purchase in June of Catapult Communications Corp., a Silicon Valley company that builds devices to test wireless networks, for about $105 million. Before it bought Catapult, Ixia didn’t compete in the wireless network industry. That market is expected to gain increasing prominence with the spread of mobile devices, such as the iPhone and Blackberry, that use wireless networks in addition to traditional cell systems. Ixia plans to push aggressively into the wireless market.
The company is also considering entering a new market, that of “live network monitoring.” Now, Ixia troubleshoots networks before they go online; in live network monitoring, the company would analyze the performance of systems in operation.
Ixia executives expect eventually to reap $40 million to $50 million in annual revenue from Catapult and $35 million to $45 million annually from N2X, said Tom Miller, the company’s chief financial officer.
Ixia also has a healthy balance sheet with cash and cash equivalents of $129 million and no debt. In June, Ixia announced it cut 75 to 80 employees – about 10 percent of its work force – in a restructuring program expected to save the company about $6 million annually.
And with money on hand, Ixia could be looking to make more acquisitions in the future.
“We’ve made two here in the past several months, so we’ll take some time to catch our breath,” Miller said. “But we’ve made no secret about our interest in moving into other spaces, and those avenues could entail acquisitions.”
On Wednesday, Ixia announced revenue of $46.4 million last quarter, down slightly from $47.3 million in the same period a year ago. The company said it recorded a net loss of $6.2 million, compared with net income of $483,000 last year.
Miller said Ixia’s core business dropped about 20 percent last quarter compared with a year ago. He attributed the decline to the recession. But those lost sales were offset by about $7.5 million in new revenue from Catapult.
The results sent the company’s stock price down from $7.62 on Wednesday morning to less than $7 at market close Thursday.
Ireland pointed out that the company’s stock volume is relatively small and thinly traded. That means trades by a handful of investors can have an outsized effect on Ixia’s shares.
But the company’s sliding profitability may not have inspired much investor confidence. The last time the company turned a profit was third quarter 2008, when it made about $480,000. Since then, the company has lost money every quarter, including $18.3 million in the last quarter of 2008. Ixia executives hope the restructuring and its recent acquisitions will reverse the trend.
Citing the company’s modest revenue numbers, research firm Eva Dimension LLC called Ixia “a challenged, slow growth, low return” company in a note to investors. Eva, based in Locust Valley, N.Y., has a “strong sell” rating on Ixia’s stock.
