Acme Packet Elevates Its Game

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By Ted Stamas :

APKT Q3 Conference Call

To paraphrase point-man and CEO Andrew Ory about the new product:

It improves our capabilities to meet the needs of our customers in three areas: for high-capacity network interconnect between service providers, for large-scale subscriber access environment, such as VoLTE, and for large-scale contact center and enterprises.

TEF

When we break down the numbers geographically, 49% of revenues come from the United States and Canada, with 51% from the rest of the world. That 51% of sales also includes the Asia/Pacific region plus South America. So just because Europe is alive and kicking, it doesn't necessarily translate into a banner quarter. For instance, during the third quarter, sales were split 27% to enterprises and 73% to service carriers. Just doing back of the envelope calculations of the revenue breakdown, you can infer it was a tough three months for Acme Packet.

The Q3 bottom line

Yahoo Finance

The reason I like Acme Packet as an investment is that it is replacing outmoded telecommunications systems. Not necessarily annihilating legacy infrastructure, but slowly making the change to LTE (long term evolution) networks.

As Senior Vice President James Hourihan stated:

There's no doubt that all service providers' mobile subscribers, at some point in time, will move on to LTE networks. Why? Because they are going to go out of business trying to run 2 or 3 mobile networks. They need to re-farm spectrum. So it's not a question of effort, it's only a question of when.

The when is a big question, especially since the company is betting the farm on LTE, or more specifically, VoLTE. Mr. Ory agrees with industry analysts that 2014 is when you are going to see subscriber growth rates accelerate. Because the implementation of this technology is time consuming, purchase-based opportunities ought to materialize in 2013. Next year it will probably be back on track a nd get back to the positive side of the ledger.

Here are some bullet points provided by company executives from the Q&A session that shed some light on Acme's relationship with VoLTE:

    • From an LTE purchase point of view, or a VoLTE purchase point of view, there are very, very few carriers in the world that are actually doing this for now.And one example would be MetroPCS ( PCS ).And they purchased for several quarters, before they finally had the infrastructure ready to start rolling out that kind of service.

    • I don't know whether it's the top 25, the top 50 or the top 100, but these are the service providers that will dominate the spending environment and the subscriber management, of services over the next 5 to 10 years.And o ur goal is to win as many of those providers as we can, to diversify away from the reliance on 1 or 2, or even a region.

    • When people think of VoLTE, and our role in VoLTE, we don't make the application servers. What we do is we secure the application servers and we extendits reach to every single access network, and we provide security at the access network as well as at the peering network.

    • Our strategy is very simple, which is to provide the most comprehensive solution and provide the greatest capacity to meetits needs most cost effectively. So oftentimes, when we end up competing, why we win isn't because our element is better than someone else's element. It's usually because our approach is that of a disruptor.

As a countermeasure to the dwindling stock price, Acme Packet repurchased 1.6 million shares for approximately $29 million in Q3. This computes to an average of $18/share. Right about where it now trades. In my personal account, I've been dollar cost averaging shares for six months now, with my cost basis at $22/share. I'm underwater, but my original premise was that I'd double or triple my money in 3-5 years, and I believe I will still do so. 4G LTE is not going to go away, and Acme Packet has the end-to-end technology to make it happen in a secure fashion.

Disclosure: I am long [[APKT]]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

See also NetEase's CEO Discusses Q3 2012 Results - Earnings Call Transcript on seekingalpha.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Technology

Referenced Stocks: APKT , PCS , TEF

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