The ailing telecommunications sector has finally caught up with once highflying Ixia.

The Calabasas company, a provider of equipment that tests and analyzes high speed networking equipment, so far has been immune from the slowdown punishing some of its major customers like Cisco Systems, Nortel Networks and Broadcom Corp., because those companies continued to depend on Ixia to test their new technologies.

But cutbacks in research and development spending among the company's largest customers sent earnings and revenues plummeting in the second quarter, a fact that could put a chill on the stock.

Ixia last week reported net income of $66,000 (4 cents per diluted share) for the second quarter ended June 30, down from $4.7 million (8 cents) in the previous quarter and $940,000 in the like year-earlier quarter.

Its second quarter revenues were down 48 percent from the previous quarter to $15.1 million, which was down 11 percent from the like year-earlier quarter.

Pro-forma earnings, which exclude a wide range of items but were the focus of the conference call last Thursday, were $2.6 million (4 cents) for the second quarter, down from $5.3 million (10 cents) in the like year-earlier quarter. "The general thought has been that Ixia had been fortunate to weather most of the storm thus far," said Daim Rauscher Wessels analyst Thomas Coler.

In late May, Ixia warned that its earnings and revenues for the second quarter would fall short of Wall Street estimates because of delayed orders from customers. The company said that it anticipated revenues between $14.5 and $15.5 million.

Ginsberg told the Business Journal last February that the company was well positioned to weather a slowdown in spending and inventory build-up at its larger customers because those same customers were still investing in R & D; to stay competitive.

Outlook changes

He was singing a different tune in the conference call Thursday.

"These results reflect a tough market for our products," Ginsberg said. "During the quarter, we continued to see strong interest from the users in the R & D; labs but a significant delay in order approval from the purchasing departments at our major customers."

While revenues and earnings lagged, Ixia added cash to its already solid balance sheet. Ginsberg said the company now has $106 million in cash, up from the $100 million Ixia posted in the previous quarter.

Ginsberg also highlighted the company's efforts to expand its product line and customer base, which together with the cash reserve could help Ixia make up for the revenue shortfall in the second quarter. Ixia added 30 new customers in the quarter, including Cox Communications and Samsung.

Another focus will be on its own R & D.; Ixia upped its R & D; spending by $150,000 from the previous quarter and expects to increase its R & D; budget through the end of the year. In the second quarter, Ginsberg said the company added more new products than it did in all of last year.

Earlier this month, Daim Rauscher's Coler downgraded Ixia stock from a "strong buy aggressive" recommendation to a "buy aggressive" because of his concerns that Ixia's customers will delay orders for the next few quarters.

Stock falls

That downgrade sent the once high flying stock down about 11 percent on the day the report was released.

Coler, however, believes Ixia has a hot product line that will enable it to ride out the climate. "It also helps that insiders own a majority of the shares, which bodes well for the long-term," he said.

When the market closed last Thursday a few hours before the earnings announcement Ixia was trading at $14.65 per share. Last December, Ixia shares rallied from the mid-teens to $29.88 per share. It traded as high as $38.34 in February.

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