UPDATE 2-Spirent Communications sees weak demand lingering

Thu Feb 28, 2013 7:10am EST

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(Adds CEO quotes, updates shares)

* Full-year pretax profit falls 3 pct to $110.7 million

* Company expects weak demand continuing in first half of 2013

* Shares fall as much as 8 pct

By Richa Naidu

Feb 28 (Reuters) - British telecoms testing company Spirent Communications Plc warned that weak demand would persist in the first half of 2013 as service providers continue to hold back on spending, especially in the United States.

Spirent's shares fell as much as 8 percent on Thursday, making it the top loser among UK mid-caps.

The United States contributes half of Spirent's revenue, and clients such as Verizon Communications Inc and AT&T Inc cut capital expenditure in the second half of last year as politicians in Washington squabbled over a huge fiscal deficit.

Now, with the government having averted the "fiscal cliff" at the beginning of the year, the economy faces automatic spending cuts -- known as sequestration -- unless Congress and the White House come to a deal on the budget.

"The U.S. government remains difficult with the sequestration coming up at the end of this week ... so (the United States) will remain a challenging market," Spirent Chief Executive Bill Burns told Reuters.

Spirent, which tests ethernet networks and 3G and 4G wireless networks and devices, said it expected some recovery in spending by U.S. telecom carriers towards the second half of the year.

Jefferies & Co analyst Lee Simpson agreed that spending would not pick up before the second half, but he maintained his "buy" rating on Spirent's stock.

Spirent's book-to-bill ratio, an indicator of future revenue, is expected to be "either 1 or just above 1" in 2013, Chief Financial Officer Eric Hutchinson told Reuters.

A ratio higher than 1 implies that more orders were received than filled, indicating strengthening demand. The book-to-bill ratio fell to 0.97 in 2012 from 1.03 in 2011.

Burns said there were signs that T-Mobile USA, a unit of Deutsche Telekom AG and Sprint Nextel Corp would also likely increase capital expenditure.

AT&T has the second-largest capital expenditure projection for 2013 among U.S. companies.

Burns noted that the 3 percent fall in Spirent's pretax profit in 2012 was a little more than analysts' expectations.

Pretax profit fell to $110.7 million in 2012 from $114.3 million a year earlier, while revenue rose less than 1 percent to $472.4 million.

Growth in the company's core performance analysis division, which tests current and next-generation mobile phones, slowed to 4 percent in 2012 from 14 percent a year earlier while contributing 92 percent of total revenue.

Spirent shares were down 7.8 percent at 152.7 pence at 1208 GMT on the London Stock Exchange. (Editing by Joyjeet Das and Ted Kerr)

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