The battle for eyeballs, once played out on TV screens by the
Big 3 networks, has shifted to smaller, more mobile devices.
Among others, the players areAT&T (
) andSprint Nextel (
), committing millions to infrastructure improvements and huge
sums for TV ads to talk up their reliability and the other guy's
Events known as "service delivery problems" turn off customers
and ruin revenue projections.
A beneficiary of this wireless warfare isNetScout Systems (
The Westford, Mass.-based company supplies network performance
monitoring equipment and software for service carriers and other
businesses that have always-on, high-volume, high-speed
"As the industry moves toward more services and mobile
delivery with iPads, carriers need faster and more quality
delivery," said Jean Bua, NetScout's chief financial officer.
"We analyze these networks, and on one end of service provide
diagnostic information about the network all the way to a more
sophisticated product, providing carriers with real-time and
predicative analytics, and proactive troubleshooting," she
NetScout can localize its analysis to inform clients of
consumer experiences trying to log on to a network in Manhattan,
NetScout says it's the only company delivering end-to-end
service for USDM, or unified service delivery management. USDM
combines VoIP (voice over Internet protocol), video conferencing,
telepresence, instant messaging, email and security.
NetScout serves two customer bases, the media service provider
and the broader business enterprise market.
The company serves 148 service providers in 46 countries,
according to Steve Shalita, vice president of marketing.
Shalita said many operators don't allow NetScout to reveal
their names, but "every major mobile operator uses our
technology, including Bell Canada and Leap Cricket."
NetScout's enterprise clientele includes 90% of the Fortune
100, Shalita said.
"These are companies highly invested in information
technology, thus the importance of service availability,
performance and user experience."
Competitors includeHewlett Packard (
),IBM (IBM) andCA Technologies (CA). "It's a highly competitive,
and fragmented market in which we compete. Customers would have
to buy products from multiple companies to achieve what we do,"
In its most recent first quarter ended in June, NetScout's
earnings rose 46% from the year-ago quarter to 19 cents a share,
while revenue increased 21% over the same period to $76.4
Investors responded enthusiastically. On July 19, when
first-quarter results were announced, the stock popped nearly
Analysts tracked by Thomson Reuters expect this quarter's EPS
to come in at 26 cents, an 8% increase from a year ago. For the
full fiscal 2013, they're looking for $1.26, a 15% increase.
Bua pegged NetScout's success to a core, long-term focus on
information technology spanning 25 years, and a stable workforce
of long-time employees.
"Our employees are driven by a culture of innovation," she
explained, "and the growth opportunity we see in the marketplace,
along with a feeling of satisfaction in knowing you're helping
customers be better than they were before our product was put in.
Plus, our company has never had a layoff, and prides itself in
having a stable workforce."
The company is willing to acquire technology and expertise it
doesn't have in-house. In July, NetScout acquired the intelligent
Customer Service Assurance (iCSA) product line from
privately-held Accanto Systems for an undisclosed sum.
In November 2011, the company bought privately held Simena, a
Sterling, Va.-based provider of Internet protocol (IP) monitoring
and switching technology.
"NetScout has a very good platform for where its management is
going, which is in distinguishing itself from its competitors by
the depth of its analytics," said Zeus Kerravala, principal
analyst at ZK Research. Kerravala said NetScout is well
positioned for the future of real-time network monitoring.
"Legacy tools for network monitoring don't really work in a
real-time environment," Kerravala explained.
It's a shift from an environment in which IT reacts to
problems to one where IT has predictive capability to anticipate
them. In fact, "73% of problems in IT are reported by the user,
instead of IT staff," Kerravala said.
"These guys have a leadership role in their industry," said
Wunderlich Securities analyst Matt Robison. "A lot of businesses
transformed to VoIP and combined with data and the wave of demand
associated with that, and also (were) driven by smartphone
platforms; operators need to make sure networks are running at
NetScout's strong quarter earned only a neutral rating from
Wedbush. The latter is concerned about the "slowing IT spending
environment," including "pockets of weakness in the international
markets and in parts of financial services and is seeing
increased budget scrutiny in the federal vertical which poses
some risk as we head into the fiscal year-end quarter for
The squeeze on federal spending is underlined by the threat of
sequestration, or automatic cuts in defense and other federal
spending, on Jan.1, absent an intervening budget deal in
Even so, Wedbush said NetScout's FY13 guidance of $340
million-$355 million in revenue and $1.21-1.30 EPS was
attainable, with recent acquisitions offsetting concerns about