October 7, 2010 / 11:31 AM / 7 years ago

UPDATE 2-Sandvine Q3 top estimates, sees strength in AsiaPac

* Q3 EPS C$0.02 vs est C$0.00

* Revenue up 52 pct

* NTT likely to be key growth driver

* Shares rise 9 pct (Recasts; Adds details, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, Oct 7 (Reuters) - Canadian network equipment maker Sandvine Corp (SVC.TO) posted its highest profit in 12 quarters and its results topped market expectations as demand for data traffic management grew globally, sending its shares up 9 percent.

Ontario-based Sandvine, which has over 200 service provider customers in over 80 countries, is likely to see Japan’s NTT Communications Corp driving demand in the fourth quarter.

“We are being deployed across their footprint,” Chief Executive Dave Caputo said on a conference call. In February, Sandvine received a contract to deploy its policy traffic switch on NTT’s high speed network.

Analysts said the company, which drew more than 60 percent of its revenue from outside North America, will see Asia Pacific driving growth over the next quarters.

Sandvine’s products, which help broadband and telecom operators manage data traffic, combine hardware and software to identify and monitor specific types of traffic across networks.

With network congestion and use of smart phones growing, Canadian mobile software companies such as Sandvine, Bridgewater Systems Corp BWC.TO and Redknee Solutions Inc (RKN.TO) are seeing rise in demand for their services and products.

Smart phone penetration even in the most advanmced countries is still well below market saturation and that leaves lot of room for growth for a company like Sandvine, said analyst Todd Coupland of CIBC World Markets.

Sandvine, which has added six new customers in the quarter, gets most of its business mainly from existing customers.

“It is still much more important for us to have new customers than it is to harvest our existing customers,” CEO Caputo said.

There are some concerns about net neutrality in the United States. Net neutrality is the principle that argues for broadband network providers to be completely detached from what information is sent over their networks.

“We are expecting some resolution of the net neutrality debate over the next 6-9 months and that should benefit companies like Sandvine since we see a lot of pent up demand in the U.S,” said analyst Sameet Kanade of Northern Securities.

Sandvine shares, which have gained nearly 50 percent of their value year to date, were up 9 Canadian cents at C$2.06 Thursday afternoon on the Toronto Stock Exchange.

Q3 RESULTS ROBUST

For the third quarter, net income was C$2.2 million, or 2 Canadian cents a share, compared with a net loss of C$4.4 million, or 3 Canadian cents a share, a year ago. Excluding items, it earned 2 Canadian cents a share, while analysts on average were expecting the company to breakeven.

Revenue rose 52 percent to C$24.4 million, topping analysts’ average expectation of C$22.2 million, according to Thomson Reuters I/B/E/S.

The company, which received over half of its revenue from reseller partners such as Alcatel-Lucent ALUA.PA and Huawei Technologies Co [HWT.UL], is working on a number of deals with them as well as other resellers like Motorola and Nokia Siemens.

“Any one could win any one of those businesses, ... so I cannot say that we expect a consistent win level from any one of our resellers,” said Chief Financial Officer Scott Hamilton.

Northern Securities’ Kanade said strong resellers, which are the telecom equipment vendors, will help Sandvine bid for the larger contracts.

The company, however, said it sees some margins pressure in larger sized deals. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Jarshad Kakkrakandy)

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