In Autumn 2010 I called out a little-known Israeli company called Allot for our collective consideration. http://boards.fool.com/1106/allot-communications-nasdaq-allt...For those of us who feared a foreign micro-cap, in the intervening peroid it has since grown up from a cap of $111M to $644 and may now be worth your re-consideration. Allot is now my 3rd largest holding and one I believe in more than when I first bought. It's a complex enough technology to understand if you come from a non-telecom background, so allow me re-explain the story.* Telecommunication is the electronic transmission of information over long distances. Where once this meant voice, it now, and more so in the future, means broadband data * The term dumb pipe refers to a telecommunication operator’s network being used simply to transfer bytes between the customer’s device and the internet. This is not ideal, as the cost of building a national telecommunication network is massive. Adding more bandwidth is not an efficient long term business solution for improving a customer’s experience * Imagine you paid a monthly subscription for water to your home where after your initial 1,000 gallon monthly bundle you’d pay for each additional gallon. If this was the case it would be reasonable to expect the utility provider to offer a service where water is delivered with priority to, say, the kitchen. followed by showers, allowing toilet cisterns to fill when instant needs have been met. This analogy is similar to your broadband usage; a video call needs to be instant, while an email can wait a few seconds before leaving your account * Allot's Deep Packet Inspection technology enables mobile service providers to identify, classify, prioritise, and shape traffic, resulting in enhanced performance and profitability. Their technology turns dumb pipes to smart pipes.Competitors: Cisco are the investible giant with DPI in their service portfolio. There are numerous other privately held companies offering similar services such as Procera and The Now Factory.Catalyst: Global mobile data traffic grew 2.3-fold in 2011, more than doubling for the fourth year in a row, with mobile data traffic was eight times the size of the entire global Internet in 2000. Mobile video traffic exceeded 50 percent for the first time in 2011, while a fourth-generation (4G) connection generated 28 times more traffic on average than a non-4G connection.Comment: Mobile data traffic will reach the following milestones within the next five years:Due to increased usage on smartphones, handsets will exceed 50 percent of mobile data traffic in 2014.Tablets will exceed 10 percent of global mobile data traffic in 2016China will exceed 10 percent of global mobile data traffic in 2016The above statistics support the need for, in Allot’s (inelegant) words, a set of tools that transforms broadband pipes into smart networks that can rapidly and efficiently deploy value added Internet services for both the network and the subscriber. What do you think? Will telecom networks need to deploy more than just new towers, antennas and fibre in order to deliver what their customers need? Can Allot capitalise on this growth?Rgds,EmmetGG Home Fool
Nice write up Emmett (now and in 2010). Thanks for the lead. Maybe you could explain where in the network this software sits? Would this be applied in the noc centers to monitor traffic or in the end offices to manage the traffic? Does allt have equipment that is inserted into the network at each office to monitor the traffic and shape it or do they have software that runs on a pc? I am going to look at this company but I would like to know more in how this software is integrated into the network. Back in the ATM days the vendors had their own software and equipment that did this.Andy
Hi Andy,Thank you for that. Allot equipment is installed in the core network, the part of the network where users are authenticated (given the thumbs up to use services either as a home or roaming customer) and their traffic managed. In old parlance, the core was the switch.The output of Allot feeds would be used, for the most part, by radio engineers, the guys responsible for ensuring that the cells are dimensioned correctly and that users are getting a good quality of service. Allot would enable radio planners to look at the network by traffic type, e.g. peer-to-peer, video streaming, email, and so on, on a macro or per-cell level. Furthermore, the marketing guys could get involved and create a product where users who pay a premium get priority mobile broadband speeds; I've overseen such an implementation. The top 10%, for example, are called platinum customers and are assured of a certain quality of service, the middle 80% are your normal Joes, best effort after the platinum folks, and the bottom 10% pay less or even nothing and take a few adverts too -- usually good for college students.It appears to me that Allot are emerging as the de facto standard for 3G and 4G networks. I substantiate that hunch soon and report back.Rgds,Emmet
Emmet,I have to admit I've looked ALLT twice and am now on my third go around. The first time I couldn't wrap my head around how far into the game they are. Ie. how many more customers are out there for them and how much can they expand their existing relationships with customers.I looked again in Oct/Nov when everything got whacked, realized it had grown tremendously since I last looked, but still couldn't resolve the question of how much growth was left from there (too bad as it's more than doubled from there). Soooo... What's your take on where ALLT is with market penetration? Are they building better mousetraps they can sell as upgrades, too? I'd like to have a better handle on this in case we get another fat pitch.Best,Nathan
Nathan and Emmett, I started looking into this also and I can see this really growing big. They are still small and after listening into their conference call I can see how the Tier 1 providers would like to use their technology. Now that the Tier 1 providers are getting away from ATM data networks and going to Ethernet I think this company has a chance to take this niche by storm. Here is something I wrote up after listening to the conference call for my own info.I am also going to post this on the mdp board to get some input.Allot Communications LTD (ALLT) April 5th, 2012Allot Communications Ltd. (Allot) is a provider of Internet protocol (IP) service optimization solutions for mobile, digital subscriber line (DSL) and wireless broadband carriers, cable operator service providers and enterprises. The Company’s portfolio of hardware platforms and software applications utilizes deep packet inspection (DPI) technology to transform broadband pipes into smart networks that can manage data over mobile and wire line networks and deploy Internet services. Its scalable, carrier-grade solutions provide the visibility, security, application control and subscriber management that are important to managing Internet service delivery, guaranteeing quality of experience (QoE). IPO'd 2006Reported earnings on Feb 07, 2012 (Q4, 2011)Price: $24.31Nasdaq 3,080.50Dow 13,060.14WTI Crude oil $103.31 Brent Crude Oil $123.43Gold $1631.39Silver $31.73Copper $3.80Cotton $0.8153Today the price in afterhours was $83.70 and the PE ratio is 75.96 and PS ratio range is 8.80**Trading range for the quarter of Jan 6 2012 low of $15.71 and a high on April 5th of $24.31.TTM EPS $.32 PE range between Jan 6, 2012 and April 5th, 2012 PE 49.09 – 75.96**Trading range between Dec 31 2008 – Dec 31 2009 $1.55 – 4.20 TTM -.35 PE Range NA **Trading range between Dec 31 2009 – Dec 31 2010 $ 3.66 - $11.99 TTM-.25 PE Range NA1Q: March 31st, 2011 highlightsTotal revenues for the first quarter of 2011 reached $17.2 million, a 38% increase from the $12.5 million of revenues reported for the first quarter of 2010, and a 6% increase from the $16.2 million of revenues reported for the fourth quarter of 2010. On a GAAP basis, net profit for the first quarter of 2011 was $1.6 million, or $0.07 per basic share and $0.06 per diluted share. This compares with a net loss of $0.4 million, or $0.02 per share (basic and diluted), in the first quarter of 2010, and net income of $1.3 million, or $0.06 per basic share and $0.05 per diluted share, in the fourth quarter of 2010. Key highlights: - First quarter revenues reached $17.2 million, a 38% increase over the first quarter of 2010- First quarter non-GAAP net income of $2.2 million; non-GAAP EPS grows to $0.08 from $0.07 in the fourth quarter of 2010- Cash, cash equivalents, marketable securities and restricted cash totaled approximately $61.0 million; generated approximately $1.0 million in cash from operations during the quarter- Added five new Tier 1 wireless service providers during the first quarter2Q: June 30th, 2011Total revenues for the second quarter of 2011 reached $18.5 million, a 35% increase from the $13.6 million of revenues reported for the second quarter of 2010, and an 8% increase from the $17.2 million of revenues reported for the first quarter of 2011. On a GAAP basis, net profit for the second quarter of 2011 was $1.6 million, or $0.07 per basic share and $0.06 per diluted share. This compares with a net loss of $7.4 million, or $0.33 per share (basic and diluted), in the second quarter of 2010, and a net profit of $1.6 million, or $0.07 per basic share and $0.06 per diluted share, in the first quarter of 2011.Key highlights: - Second quarter revenues reached $18.5 million, a 35% increase over the second quarter of 2010- Second quarter non-GAAP net profit of $2.7 million; non-GAAP EPS grew to $0.10 from $0.08 in the first quarter of 2011- Cash, cash equivalents, marketable securities and restricted cash totaled approximately $63.5 million; generated approximately $3 million in cash from operations during the quarter- Added five new Tier 1 service providers during the second 3Q: Sept. 30th, 2011Total revenues for the third quarter of 2011 reached $20.1 million, a 37% increase from the $14.7 million of revenues reported for the third quarter of 2010, and a 9% increase from the $18.5 million of revenues reported for the second quarter of 2011. On a GAAP basis, net profit for the third quarter of 2011 was $2.1 million, or $0.09 per basic share and $0.08 per diluted share. This compares with net income of $0.8 million, or $0.03 per share (basic and diluted), in the third quarter of 2010, and a net profit of $1.6 million, or $0.07 per basic share and $0.06 per diluted share, in the second quarter of 2011.Key highlights: - Third quarter revenues reached record $20.1 million, a 37% increase over the third quarter of 2010- Third quarter non-GAAP net profit of $3.4 million; non-GAAP EPS grew to $0.13 from $0.10 in the second quarter of 2011; non-GAAP operating margin reaches 16%- Cash, cash equivalents, marketable securities and restricted cash totaled approximately $66.7 million; generated approximately $3.4 million in cash from operations during the quarter- Added 5 new service providers during the third quarter 4Q: Dec, 31st, 2011Total revenues for the fourth quarter of 2011 reached $22 million, a 36% increase from the $16.2 million of revenues reported for the fourth quarter of 2010, and a 10% increase from the $20.1 million of revenues reported for the third quarter of 2011. On a GAAP basis, net profit for the fourth quarter of 2011 was $3.5 million, or $0.13 per basic share and $0.12 per diluted share. This compares with net profit of $1.3 million, or $0.06 per basic share and $0.05 per diluted share, in the fourth quarter of 2010, and net profit of $2.1 million, or $0.09 per basic share and $0.08 per diluted share, in the third quarter of 2011. For the full year 2011, revenues reached $77.8 million, representing a 36% increase over the $57 million of revenues in 2010. On a GAAP basis, net profit for the year 2011 was $8.8 million, or $0.35 per basic share and $0.33 per diluted share, as compared with a net loss of $5.8 million, or $0.25 per share (basic and diluted), in 2010.The weighted average number of diluted shares increased in the fourth quarter of 2011 reflecting the issuance of new shares as part of the Company’s public offering which closed on November 15, 2011.Key highlights: - Fourth quarter revenues reached $22 million, a 36% increase over the fourth quarter of 2010- Fourth quarter non-GAAP net income of $4.2 million; non-GAAP EPS grows to $0.14 from $0.13 in the third quarter of 2011, despite dilution effect due to public offering- Cash, cash equivalents and marketable securities totaled $159.4 million; generated approximately $7.7 million in cash from operations during the quarter; $15 million for the year 2011- Revenues for 2011 increase by 36% to $77.8 million; non-GAAP EPS reaches $0.46 Acquisitions• In September 2002 Allot acquired NetReality, a provider of network application priority switches (NAPS), in order to enhance its quality of service (QoS) and bandwidth management solutions.• In January 2008 Allot Acquired Esphion, a New Zealand based developer of network protection solutions for carriers and internet service providersThoughts:36% yoy 2011 over 2010. 10% over 3rd quarter of 2011.Latest Earnings call: It costs the Providers (Tier1 and others) 5 times more if they install equipment over the hardware and software solutions of ALLT. ALLT provides a 30% more bandwidth savings allowing providers to hold off installing more equipment. Growing more into Mobile and Fixed line Tier1 providers. Allt has customers in Europe, Asia, South America and North America. They are now pushing hard into the United States. This is an Israeli company. They are positioning themselves for the future flood of data. They are the only provider at this time of a single platform of optimization and monitoring of Data Packets. They see the Tier 1 providers going to an intelligent base charging system instead of a flat rate and they expect their value added services to grow. These allow the provider to charge more for their services by allowing priority data services to their customers. Allt also allows deep packet analyzation which allows them to prioritize traffic. They use VPI to identify applications on peer to peer traffic. IE Video, voice, skype. This type of technology competes indirectly with the equipment vendors by allowing more bandwidth across existing equipment.Possible problems in the future:Allt is not concerned with their direct competitors at this time because this is a growing field with young upstart companies with lots of room to grow. Where they may run into problems in the future would be with the large vendors IE Cisco, Ciena, Infn, and all the existing players in these fields. They could push R&D to allow their equipment the same deep packet technology. But the problem with this is that they are already behind the curve (The top Vendors) It would make more sense for them to buy these small companies out. If Allt is allowed to grow they could end up being the big player in this market but they have to make sure they add enough value in order for the tier 1 providers to spend the money to put their box into the network.Andy
Today the price in afterhours was $83.70 and the PE ratio is 75.96 and PS ratio range is 8.80 Please ignore this I was looking at another company.Andy
Hi Andy,Thanks for sharing your notes. I'll take a look and see if there's anything I can add to my own!Best,Nathan
Your welcome Nathan, One thing I forgot to add is that F5 networks (FFIV) is looking to move into this space also. They recently acquired Traffix Systems, provider of 4G Diameter signaling products for telecommunications service providers.Andy
Nathan, Andy,Apologies for just getting back to you now. I was away in Portugal with my family for a week (saw absolutely no marking presence from Portugal Telecom, by the way).I'll post something here tomorrow.In the meantime this is a decent piece: http://www.forbes.com/sites/zacks/2012/04/02/allot-surges-hi...Rgds,Emmet
Hello again guys.I’ve grappled with the sizing question too: how far are they and how much is left? I’m afraid on this I can only offer you a spectator’s analyses, insofar as I have no hard data relating to percentage of networks using Allot’s DPI. In Europe, I know as fact that that one major network has deployed Allot solutions across their portfolio, however, the majority of the countries where they're deployed are not yet monetising the power of traffic shaping. This however is inevitable; targeted advertising, ‘lawful intercept’ and QoS – Quality of Service – are all empowered by deep packet inspection. About 2 years ago Vodafone Spain launched a Gold/Silver/Bronze mobile broadband offering that has reasonable success, but like many first-to-markets, were a little early in the curve for absorption. First mover in this space counts for a lot as it's tricky, to put it mildly, to swap from one vendor to another (but not impossible). While there are many competitors in the DPI field, mostly privately owned enterprises, it’s is notoriously difficult to break into the list of approved vendors for a telecom operator. A friend of mine who managed to sell his business to a telco, described life selling services into operators, as one very long string of disappointments with the occasional unexpected success. Allot are already wired into many core networks, which in my books counts for something.A real worry I have about Allot however, comes from a friend who has dealt with the company extensively. His view is entirely subjective and second hand, but one I heed as I know the guy since we graduated. To quote him, in relation to Allot: "there is no company I hate more". He cites reasons that I will sensitively summarise as cultural differences between Israeli sales engineers and Irish-customer engineers charged with integrating ALLT hardware and dashboards. I asked if his counterparts in other networks felt similarly and he suspects they do. Again, suspects. My investment in Allot comes down to one simplistic fact: without traffic management technologies, in which Allot have a lead, mobile and fixed broadband providers are toast. If Cisco put their energy into the area in a serious way, I'll start to worry, but so far so good.Rgds,Emmet PS: What does fat pitch mean? I googled it and have deduced it’s to do with baseball – a sport I regrettably have zero exposure to.
What does fat pitch mean? I googled it and have deduced it’s to do with baseball – a sport I regrettably have zero exposure to.Ah, Emmet, I am sorry to see that you too have bought into that pernicious canard that Americans only care about sports and diet cola. In fact, we care about many other things –fast food, fast cars, and fast wom. . . fast response to telephonic service inquiries.In order to understand the meaning of “fat pitch,” you must of course understand the meaning of its two components (being, “fat” and “pitch”). A couple of simple Google searches here help immensely:“fat” means:File Allocation Table – File Allocation Table (FAT) is the name of a computer file system architecture and a family of industry standard file systems utilizing it. The FAT file system is technically relatively simple yet robust.See: http://en.wikipedia.org/wiki/File_Allocation_Table“pitch” means:To attempt to promote or sell, often in a high-pressure manner: "showed up on local TV to pitch their views" (Business Week)see definition #7 at: http://www.thefreedictionary.com/pitch )So, integrating the knowledge thus obtained into one harmonious whole, we see that a “fat pitch” is an effort to convince us to purchase a File Allocation Table.I hope this helps, and trust that you will come to appreciate the diverse and nuanced nature of the American spirit!RichTriangle Anomaly
Actually Emmett what Nathan was saying about a "Fat Pitch" is a Buffettism meaning that if the stock drops far enough it will allow him to buy it at a very attractive price.That being said one of the competitors that worries me the most is FFIV because they have pretty much dominated all of the data centers here in the U.S and they are now moving into this space. This space will be huge because of all the data that is going to just grow and by "shaping" or allocating the traffic it will allow all the providers to spend less on hardware, thus saving them floor space, air conditioning and all other associated costs. I like the trajectory of growth from Allt, but I also like FFIV's constant growth. I wonder if the best way to play this is buy a basket of Allt, FFiv, and PKT?Andy
Very funny Rich! :C) Thanks Andy, I appreciate that. I'll take a close look at F5 later, but as far as I recall they're more concerned with IT infrastructure traffic as opposed to telecom network traffic, which are two very different animals. I may be wrong about F5. Will investigate and come back to you.Rgds,Emmet
I could be wrong but with their aquisition of Traffix Systems (another Israeli company) it seems they have moved into the Wireless Company Division. http://www.f5.com/pdf/analyst-reports/f5-acquires-traffix-sy... F5 has been able to enhance the performance of Diameter messaging in ways similar to those it uses for other traffic. With Traffix integration, it has the potential to go beyond this to become anenforcement point that can control subscriber access and experience. This integration would have Traffix controllers signaling F5 equipment as a subscriber's service requests are processed. The F5 gear would then manage that user's traffic flows according to the terms of their service agreements. It could also tag traffic to pass service and user information on to other applications in order to build enhanced services. While F5 Networks has primarily been a data networking vendor,as much as 25% of its business has been with carriers and telcoslooking to manage growth and scale. The next generation ofwireless networking, 4G Long Term Evolution (LTE), sports a newcontrol plane protocol named Diameter to manage the additionalservice density that this convergence can deliver. While F5 hadsome capability in this market, it has acquired Traffix Systems togive it depth in management and control in what it sees as anexpanding frontier in networking. I dont believe they have deployed 4G lte in the IT infastructure yet :)Andy
Nice one Andy! Will look Monday. Thanks!
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