Generating earnings growth has been a challenge for small technology companies in the aftermath of the industry downturn of four years ago.

But Ixia, a maker of network testing equipment based in Calabasas, is proof that companies with growth prospects and solid finances are capable of staging a rebound.

Though Ixia shares slumped for most of the year, investors took notice when the company beat third quarter earnings estimates and raised its earnings outlook for 2004.

Since it reported a 96 percent increase in third quarter net income on Oct. 21, Ixia's shares have risen by 43 percent, to close at $13.17 on Nov. 3.

Analysts say Ixia's sales to government agencies and commercial customers nearly doubled in the third quarter, as it diversified from its primary reliance on network equipment manufacturers, which use its gear to test their products.

Cisco Systems Inc. accounts for 30 percent of sales; add in Alcatel, Hewlett-Packard Co., Nortel Networks Corp. and NTT Docomo and the total is 49 percent.

"They're diversifying from just supplying test and measurement tools to Cisco," said Ryan Hutchison, an analyst at WR Hambrecht & Co. He said larger capital expenditure budgets among phone-carrier customers such as Comcast Corp., SBC Communications Inc., Verizon Corp. and NTT Docomo have helped.

"Ixia can be a great company, but it is much better to serve a potential market of $1 billion than a market of just $300 million a year," agreed Samuel Wilson, an analyst at JMP Securities LLC in San Francisco.

Company officials boast that they poached several sales engineers from competitor Spirent Communications Inc., a unit of U.K.-based Netcom Systems Inc., which has offices just down the street from Ixia. The new sales team has aggressively sought out federal contracts, said Tom Miller, Ixia's chief financial officer.

(Ixia's other main competitor is Agilent Technologies Inc., the Hewlett-Packard Co. spin-off that has a strong relationship with Cisco rival Juniper Networks Inc.)

Miller said the company's sales force gained traction in the third quarter, after a second quarter in which Ixia had trouble getting a read on its sales outlook.

"We release earnings three weeks into the next quarter and typically we talk to our sales staff to get an outlook of what the next quarter looks like," Miller said. "There was more visibility of deals that our sales team was working on, so the environment (for the fourth quarter) definitely is looking better."


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