Tollgrade makes a little money in a bad market

Tollgrade Communications is doing “better than a lot of other equipment vendors” because its technology is essential for customers who are trying to wring every penny of efficiency from their network operations, Chris Allison, the company’s chairman-CEO said during a conference call discussing third quarter earnings this morning.

While Tollgrade’s earnings of 2 cents per share on $13.9 million in revenue fell into the lower end of the company’s guidance and were below third quarter 2001 earnings of 16 cents per share on $16 million in revenue, they were still a positive in a negative economy, Allison said.

“It’s not like we’re making optical backbone infrastructure equipment where there’s a lot of capacity,” Allison said. “We’re helping manage their existing network better.”

Tollgrade recently sliced headcount by 50, mostly in research & development, and is “watching every nickel,” Allison said. Profit, as a percentage of sales dropped to 50.7% from 52.2% a year ago.

Allison did not see things improving until next year when the company’s primary customers, RBOCs and ILECs open up their capital expenditures. And that may not happen without regulatory relief, he cautioned.

“Their budgets are just totally clamped down,” Allison said. “One of our best customers says they’re not going to spend any money even if they need the products. Inventories are getting bone dry, so that would tell you there may be some pent-up demand for products. The customers want to buy, but they can’t do it until their budgets open up next year.”

Allison also saw some hope in two advanced technology areas: DSL and cable customers.

“Our Lighthouse [cable] business has been improving the last couple of quarters and we’re starting to see our largest customers, AT&T Broadband starting to spend money at levels to maintain their status monitoring systems,” he said. “DSL deployment … is actually not that bad. They are making inroads. Part of those regions are using our technology to qualify lines.”

Still, the telecommunications market is “what makes me look at the ceiling at 3 o’clock in the morning,” said Allison. “The thing that encourages me is that we have a lot of our initiatives getting funded because the business cases are good.”