October 7, 2009 / 8:09 PM / 8 years ago

PREVIEW-New customers, product launch may help Sandvine revenue

* What: Q3 results

* When: Thursday, Oct 8

* Analysts expect Q3 loss

* New customers, product launch to help revenue

By Koustav Samanta

BANGALORE, Oct 7 (Reuters) - Canada's Sandvine Corp (SVC.TO) is likely to post a third-quarter loss, but analysts are focusing on revenue growth, which is expected to be driven by new customers and a product launch.

The company, which helps broadband and telecom operators manage data traffic, won nine customers in the third quarter -- including four service providers last month from its Europe, Middle East and Africa sales region.

Sandvine's products combine hardware and software to identify and monitor specific types of traffic across networks.

Analysts believe new customers and the Policy Traffic Switch 24000 (PTS 24000) platform launched last month will help the company's quarterly results.

The company had said that two European customers were already deploying the PTS 24000, which helps carriers apply network policy controls and enable new services on their networks.

"We expect a meaningful and immediate revenue contribution from the new device," Canaccord Adams analyst Dushan Batrovic said in a note dated Oct. 1. "The launch, in our view, further extends Sandvine's technological lead relative to peers."

Sandvine is expected to post a loss of 3 Canadian cents a share for the third quarter, on revenue of C$16.6 million, according to Thomson Reuters I/B/E/S.

M Partners analyst Sameet Kanade said the company has been spending extensively on research and development to add more solutions to their platform.

However, he said "R&D spent as a percentage of revenue will start normalizing going forward."

Research and development expenses rose 21 percent to C$6.9 million in the second quarter, while the company's revenue jumped 37 percent to C$15.2 million, supported by a strong wireless market.

Sandvine is well positioned for robust growth supported by its proprietary software solution, strong management team and relative financial strength, analyst Kanade said in a note to clients dated Sept. 28.

IS FCC PROPOSAL A CONCERN?

On Sept 21, U.S. Federal Communications Commission Chairman Julius Genachowski said operators should not be able to discriminate against any Internet applications or content and would have to make management practices for Web traffic transparent. [ID:nN21307002]

Canaccord's Batrovic said the uncertainty associated with the FCC's rulemaking process and potential legal challenges could lead to a "pipeline pause" for Sandvine in the near term.

"We believe that the strict adoption of net neutrality rules would make the wireless experience virtually unworkable," Batrovic wrote in a note dated Oct. 1.

M Partners' Kanade said he believes the end result will be that the FCC will not impose restrictions but rather will specify guidelines.

"We do not expect these proposals to have negative implications for Sandvine as the company has proven that its application-agnostic solutions like FairShare can aid in network management without targeting specific applications and can 'play within the rules'," Kanade said in the note.

The Waterloo, Ontario-based company's shares, which have gained about 7 percent in the last one month, closed at C$1.37 Wednesday on the Toronto Stock Exchange. (Reporting by Koustav Samanta in Bangalore; Editing by Ratul Ray Chaudhuri)

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