NGN spending pulls back, though hopeful spots remain

If the industry was curious as to how aggressively service providers are moving to next-generation networks, the current economic downturn and credit crisis certainly should shine a light on whether the evolution to IP networks is urgent or can be deferred to better times.

This week, particularly gloomy earnings reports from IP infrastructure providers Cisco and Sonus cast a pall over this sector of the market. But after market close on Thursday evening, session border controller (SBC) vendor Acme Packet painted a brighter picture, saying it is not yet seeing a pull-back in spending on SBCs – a key NGN network element.

“I think in a broader sense, we're seeing all these capex freezes [reported by other vendors], and we're still doing business with a lot of these service providers,” Andy Ory, president and chief executive officer of Acme Packet, said in the company’s earnings call. “I think the reason behind that is that capex freezes tend to impact budgeted programs. But programs that are success-based, that either lower the cost of doing business with a quantifiable [return on investment] or are involved in real revenue-generating activities, are things [service providers] continue to invest in.”

Overall, Acme Packet reported third-quarter earnings per share of $0.05, in line with analyst estimates. Revenue for the quarter was $28.4 million, again in line with consensus estimates but down from $29.6 million from a year earlier.

Those results, and Acme’s “cautiously optimistic” view of the overall sector was a marked difference from IP competitors Cisco and Sonus. On Wednesday, Cisco said it expected revenue in its second fiscal quarter, which ends in January 2009, to decrease by 5% to 10% year over year – which dragged both its stock and the entire market down on Thursday. VoIP provider Sonus’ earnings report was even more dire. The company reported third-quarter earnings of $62.2 million, down from $75.8 million in the same period in 2007 – an 18% year-over-year decrease. Sonus CEO Richard Nottenburg said his company has seen a clear pullback in orders from service providers, beginning this fall.