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Ixia Plunges After Cutting Q2 Sales Outlook (XXIA)

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Among the biggest losers on the Nasdaq on Tuesday was Ixia (NASDAQ: XXIA), a provider of testing hardware and software for the wireless and wired infrastructure industries.

The company's operations are primarily focused on the enterprise where its solutions are used to test, assess, and optimize networks and data centers. Among its services are network testing, security enhancements and network monitoring.

Overview

Given its position in the fast growing networking space, the company has grown its top-line sales at an impressive rate over the last five years, with revenue going from $178 million in 2008 to over $413 million in fiscal 2012. Ixia has also been able to show strong net income growth during the same time period, and has been profitable for the last three years.

Because of the company's track record of growth, this metric has been of primary importance to investors and been the key catalyst for the stock price. Over the last five years, XXIA has more than doubled and today the company sports a market cap north of $1 billion.

A revenue warning delivered after the closing bell on Monday, however, has sent the stock down around 20 percent late on Tuesday. The severe reaction in the share price reflects the importance that investors attach to the company's top-line growth in valuing the stock.

Q2 Revenue Warning

The company said on Monday that its outlook has been hurt by "lower than expected revenue from network equipment manufacturers and certain service providers." Given Ixia's enterprise-centric business model, a slowdown among a few key customers can significantly impact its sales.

Ixia now expects Q2 revenue of $114 million to $116 million, compared to its previous guidance calling for revenue of $119 million to $122 million. The current range is below analysts' consensus Q2 sales estimates of $120.14 million. On a positive note, Ixia said that revenue from its 2012 acquisitions Anue and Breaking Point are tracking at the high-end of the expected range. The company is due to report its full financial results for the fiscal second-quarter on July 30, after the market close.

Management Commentary

“We are disappointed with our topline performance this quarter, which was impacted by several factors, including lower than expected revenue from network equipment manufacturers and certain service providers as customers extended review cycles and certain large deals that were pushed into future quarters,” said Vic Alston, president and CEO of Ixia.

“We did, however, see several positive trends in the quarter. Sales to our two largest customers, AT&T and Cisco, were strong and in line with expectations, and our overall book-to-bill ratio was in excess of one. Additionally, the performance of our 2012 acquisitions, Anue and BreakingPoint, was very encouraging and revenue is expected to register at the high end of our expectations for the second quarter. These indicators give us confidence that our competitive position remains strong although we remain cautious about the near-term spending environment,” continued Alston.

Analyst Reaction

Wall Street analysts were quick to downgrade the stock on Tuesday. Stifel Nicolaus analyst Patrick Newton lowered his rating on the shares from Buy to Hold and removed his $21.00 price target on XXIA in the wake of the news.

Deutsche Bank also cut its rating on the shares from Buy to Hold. The analysts cited a lack of a near-term catalyst and slowing growth at the company as reasons for the downgrade. Deutsche Bank also lowered its price target from $21 to $17. The firm said that while it remains "constructive on several longer-term growth drivers to Ixia's business," the lowered Q2 guidance "is a signal of weaker than anticipated demand from several product areas and end-markets."

Posted-In: Analyst Color Earnings Long Ideas News Guidance Short Ideas Downgrades Price Target Best of Benzinga

 

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