UPDATE 2-Spirent sees China, Europe 4G spend driving 2014 growth

Thu Feb 27, 2014 8:26am EST

By Abhirup Roy

Feb 27 (Reuters) - Spirent Communications Plc forecast a return to revenue growth this year as the rollout of 4G mobile phone networks in China and Europe replaces dwindling U.S. demand for its telecom testing services.

Spirent's shares rose as much as 7 percent on Thursday to rank the stock among the top percentage gainers on the FTSE-250 Midcap Index.

Spirent, which tests ethernet and wireless networks and devices for companies such as Cisco Systems Inc and Nokia, expects organic revenue growth of 8-9 percent this year, Chief Executive Eric Hutchison said.

"We are on track to see revenue growth in the first quarter," Hutchison told Reuters in an interview after Spirent reported full-year results.

He said investments by wireless carriers to support the rollout of long-term evolution (LTE) 4G networks, particularly in China and Europe, would be the "big driver" of growth.

Ericsson, the world's biggest maker of mobile networks, said last month that demand was picking up in Europe and China due to investment in LTE networks that can cope with increasing data traffic from smartphones and tablets.

The global LTE infrastructure market is forecast to reach 11.4 billion this year and the number of LTE subscribers worldwide will exceed 153 million, according to Infonetics Research, a telecom market research firm.

Infonetics said most of these subscribers would be in Asia-Pacific, Europe, the Middle East and Africa.

"In terms of supply of test equipment in China, we've got well over 50 percent market share," Hutchison said. "We should see some growth coming out of that."

China issued 4G licences at the end of last year to the country's three telecom carriers - China Mobile Ltd, China Unicom Hong Kong Ltd and China Telecom Corp Ltd .

Total spending on LTE networks in China may reach $16 billion in 2014, with the number of users topping 30 million, the official Xinhua agency cited the minister of industry and information technology as saying in December.

'TURNING POINT'

Growth in the European and Chinese wireless infrastructure markets promises a better year for Spirent, analysts said, after the company reported a sharp drop in profit and revenue.

"The market will hopefully say that this is a turning point," Panmure Gordon analyst George O'Connor said. "There is more transparency about the underlying business."

Spirent's full-year pretax profit fell 64 percent to $39.1 million and revenue fell 12 percent to $413.5 million.

Revenue from the United States, Spirent's largest market, fell 10 percent last year.

While sales also fell in Europe and the Asia-Pacific region, the prospect of a turnaround is better in these regions than in North America, where demand for the company's test systems has fallen.

"That continues to be a feature, particularly in North America, where we haven't seen significant contract releases yet," Hutchison said. "That gives us a degree of near-term uncertainty."

Spirent also said it planned to invest about $33 million in product development this year. After buying software maker DAX Technologies for $37 million this month, the British company is also considering more acquisitions.

"We are looking at $20- to $30-million technology bolt-ons in wireless technologies, data analytics and in anything that can help kickstart in automotive testing and in software-defined networking," Hutchison said.

Spirent's shares were up 3.2 percent at 108.80 pence at 1322 GMT on Thursday on the London Stock Exchange.