For Ixia, there is no more immunity. Six months ago, the Calabasas technology innovator looked like a company that would escape the economic slowdown that was sapping dollars from others in its sector. As the developer of equipment that tests next-generation technology, the company thought it was safely insulated from the problems affecting other 101 Corridor companies. Regardless of the problems companies like Cisco Systems Inc. and Juniper Networks (both Ixia customers) were having, it seemed certain they would continue to invest in research and development. But a reduction in spending on development of new products by some of the Internet’s biggest players indicates an economic slowdown may be more prolonged than many, including Ixia President and CEO Errol Ginsberg, once expected. While the conventional wisdom a few months ago dictated that business in the technology sector would pick up once orders for equipment caught up with inventory, the fact that customers of companies like Ixia are cutting back on R & D; spending indicates the situation may be more complex than that. “Testing companies tend to be buffeted somewhat in a downturn,” said Syed Harder, an analyst with Frost Securities, “but in a severe downturn, obviously everybody gets hit.” Ixia’s net income in the first quarter of this year was $4.7 million on revenues of $28.8 million, up from $1.3 million in the same quarter of 2000 on revenues of $11.2 million. Ixia went ahead last October with an initial public offering that saw its stock streak from an opening price of $13 to more than $30 in a matter of days: a familiar story two years ago, but not in late 2000. Things change. On July 19, four-year-old Ixia announced its string of 12 consecutive profitable quarters was intact, but just barely. The company reported net income of $66,000, zero earnings per share, on revenues of $15.1 million. In the same quarter a year ago, Ixia had net income of $940,000 on revenues of $17 million. “We’re in a tough market and it’s difficult to do business right now,” Ginsberg said. “We have seen a significant decrease in Q1 and Q2 orders from our customers as many of them grappled with declining sales within a tougher telecommunications market.” In fact, Ixia may be one of the last companies that make equipment to test and analyze high-speed networking technology to feel the pain. Tollgrade Communications Inc., for instance, saw its net income fall in the second quarter for the first time since September 1999. Tollgrade had $5.8 million in net income on revenue of $28 million in the second quarter, after recording $7.8 million net income on $32.6 million in the first. In the second quarter of 2000, Tollgrade had a net income of $5.2 million on revenue of $22.4 million. While other Ixia competitors have not announced earnings yet for the second quarter, their stock prices have fallen, if not as precipitously as Ixia’s in recent weeks, just as consistently over the same time period. Ixia reached its 52-week high of $39 in late January and plunged to $9.94 on April 6. It closed on July 20 at $14.35. In late January Tollgrade traded as high as $48, closed at $16.93 on March 19 and at $21.35 on July 20. Agilent Technologies Inc., another one of Ixia’s competitors, reached a high of $68 on Jan. 18, dropped to $25 on April 6 and was trading July 20 at $30.30. “Ixia is like everybody else, they’re tied to the tech cycle,” said Michael Ching, an analyst with Merrill Lynch. “The customers they’re selling into are cutting expenses.” While the Nortels and Ciscos of the world are certainly not shutting down their R & D; departments, CFOs are making the same financial decisions for them that they are for other parts of their companies. “Say these companies like Ixia are selling five test platforms into an R & D; group,” said Harder. “In a tough environment like this, they’re cutting that back to two platforms.” Analysts have not lost all confidence, of course, in either Ixia or the sector. “Their customers just need to get their houses in order a little bit,” Ching said. “Once their customer base stabilizes, they’ll come back very strongly.” Meanwhile, investors get the same advice about Ixia as they usually do the Chicago Cubs: Wait until next year. “This quarter and the next quarter will be flattish,” Harder said, “but that will be followed by a gradual trend upward.”