For Ixia, Staffing for the Future Is Well Worth Cost CORPORATE FOCUS By JACQUELINE FOX, Staff Reporter Calabasas-based Ixia has managed to survive the downturn in the telecommunications industry by doing one major thing: cutting out the middleman. The company, which manufactures systems that allow businesses to track their data communications equipment and high-speed network performance, posted its 19th consecutive quarter of profitability in the fourth quarter ending Dec. 31. Revenues were $18 million compared with $17 million in the previous quarter. However, operating costs soared because the company has hired more engineers to develop new products that it is selling directly to the end user. “In order to stay ahead, we’ve continued to add people in our engineering (department),” said Errol Ginsberg, Ixia’s president and CEO. “But that has increased our expenses, so sales are growing but our net profits have come down a little bit.” Net income in the fourth quarter was $225,000, or less than $0.01 per diluted share, compared to $3.3 million, or $0.05 per diluted share, for the comparable period last year. Ixia said that its reported net income included a one-time charge of $1.7 million for the write-down of assets related to its acquisition of Caimis in the fourth quarter of 2001. Pro forma net income was $2.5 million, or $0.04 per diluted share, in the most recent quarter, compared to $3.6 million, or $0.06 per diluted share in the fourth quarter of 2001. For the year 2002, net income was $9.1 million ($0.15 per diluted share) on revenues of $67.6 compared with $19.1 million ($0.31 per diluted share) for 2001 on revenues of $77.2 million. One of Ixia’s new products, the TXS interface card, is used to track packets of information over high-speed optical networks. Rather than selling TXS strictly to its network manufacturing clients, such as Cisco Systems Inc., Ixia is selling it straight to the end user where it can perform on-site testing and get the glitches out before the client takes its system live. “Before we were limited to markets primarily for network manufacturers, but with these new products we are able to now sell straight to the companies that actually use them, and this has broadened our market share,” Ginsberg said. Troy Jensen, an analyst with Minnesota-based Dougherty & Company, said Ixia has created a whole new way to grow and should be in a solid position once more businesses, now holding off because of economic worries, begin to spend money again upgrading their networking systems. “What Ixia has realized is that network performance requires a thorough testing first, but also a need for tweaking once you take the system live,” Jensen said. “In the past they only showed their equipment to the networking manufacturers, now they are able to go straight to the user, which has led to growth.” But despite the growth, Ixia has not been immune to the hits telecom companies have been taking on Wall Street. Its stock hit a 52 week high of $9.75 in May, but then reached a low of $1.84 in October. Its stock was trading at $5.01 on Feb. 14. “We were pretty much victims of the same thing affecting the entire telecommunications industry,” Ginsberg said. In announcing the company’s most recent quarterly performance, Ginsberg pointed to the strength of Ixia’s 10 Gigabit Ethernet products among others. “Sales of 10 Gigabit Ethernet products were the highest ever,” Ginsberg said, referring to the fourth quarter performance. New products contributed over 40 percent to Ixia’s sales in the fourth quarter, Ginsberg added. As of Dec. 31, the company had $122.2 million in cash and investments and no debt. One positive, Jensen pointed out, is that Ixia has no debt, and, if that holds true over the next few quarters, the company will be even more attractive to investors once the market picks up again. “They are a well-managed, profitable company,” Jensen said. “I think they will outperform the sector because of these new markets they are opening up.”