If you've ever driven through Times Square during rush hour,
you know what it's like to be in a real traffic jam. Horns
blasting, pedestrians crossing between cars, cars swerving.
Allot Communications (
) can't get rid of Manhattan's rush-hour gridlock. But it does
help assure traffic runs more smoothly and efficiently over
Allot's hardware and software allow fixed and mobile carriers
and businesses to manage network traffic according to the nature
of the content and its importance and end-user preference.
Its products use a proprietary deep packet inspection
technology, or DPI, to monitor and manage bandwidth consumption.
DPI technology identifies what type of applications, or traffic,
comes over the network and where to route it to make the network
more efficient to use.
The Israel-based company says the ability to identify,
distinguish and prioritize different applications lets service
providers optimize bandwidth usage and reduce operational costs,
while maintaining a high service quality.
Three Billion Smartphones
Allot's products have been in big demand as data traffic on
carrier networks has exploded. You can thank the world's 700
million smartphone subscribers for the increase, says Northland
Capital Markets analyst Catharine Trebnick. That number, she
says, is expected to climb to 3 billion by 2017.
"One of the reasons why the carriers need to buy Allot's
equipment is they can optimize and make their networks more
efficient," she said. "It's a less expensive solution to making
the network more efficient than adding more base stations."
Customers, she says, see a return on their investment from
Allot's products within nine to 12 months of installation.
That partly explains why Allot has been enjoying a booming
business, even in a tight capital spending environment.
"Allot has had spectacular revenue and earnings growth," said
analyst Matt Robison of Wunderlich Securities, which has an
investment banking relationship with Allot. "The reason is
operators are not so interested in expanding capacity, but in
spending on productivity. They're bringing customers an operating
advantage. That enables Allot to flourish, despite tough economic
conditions for the broader communications infrastructure
In the first quarter, Allot handily beat views on both sales
and profits. Earnings popped 88% to 15 cents a share, breaking a
string of five straight quarters of triple-digit growth. Sales
climbed 41% to $24.2 million. It's the fastest growth it's seen
since the fourth quarter of 2010.
During the quarter, Allot received big orders from 17 large
service providers, five of which were from new customers. Seven
of these orders were from mobile operators.
If followers are right, Allot should post another solid
showing when it reports second-quarter results July 31. Analysts
polled by Thomson Reuters expect Allot to show a 40% rise in
second-quarter earnings to 14 cents a share.
Trebnick expects results to be in line with Wall Street's
"It offers a solution that can easily alleviate bandwidth
problems and set up operators for future new revenue generating
services such as charging end users for Facebook access at $5 a
month," she said.
Allot's second-quarter results follow an acquisition that
should enhance its offerings.
In May, Allot bought Ortiva Wireless, which specializes in
optimizing video that comes across wireless networks for an
undisclosed sum. Integrating Ortiva's technology with Allot's
Service Gateway platform will allow mobile service providers to
effectively manage the increasing volume of video traffic on
their networks, says the company. Allot's Global MobileTrends
report shows that video represents 42% of mobile data traffic
Allot expects the buy to be accretive on a quarterly basis by
the end of 2012. It sees it contributing $3 million to $5 million
in revenue for the 2012 second half. Allot estimates operating
expenses tied to the buy will be roughly $2.5 million per quarter
for the year's second half.
The acquisition brings Allot an additional capability, which
is managing video traffic on mobile networks, says Trebnick. It
helps Allot address a growing trend, she adds, which is the
expediential growth of video traffic.
It's important Allot keeps up with market trends, considering
its rivals include router and switch infrastructure giants such
asCisco Systems (
) and Huawei Technologies.
Allot has a strong exposure to some trouble spots on the map.
Europe accounted for 50% of 2011 revenue and 12% came from the
Middle East and Africa. Some 17% was from Asia and Oceania and
12% was from the U.S.
Robison noted in a recent report that Allot has the most
European concentration of any company in his communications
"However, checks indicate the economy in Europe is not slowing
down for Allot due to the rapid return on investment that is
benefiting Allot customers," he wrote. "In addition, we believe
the company is experiencing acceleration in the Americas that
will more than offset any near-term lumpiness in other
Analysts surveyed by Thomson Reuters expect full-year earnings
to rise 33% to 61 cents a share. That would follow a 171% jump in
profits in 2011 and 383% surge in 2010.