Sandvine’s Streak Ends

It wasn’t exactly Joe Dimaggio’s 56 game, hitting streak, but investors had become use to steady, predictable improvement from Sandvine (TSX:SVC).

Over the course of increasing its quarterly revenue from 15.2 million in Q2 2009 to just over $25 million in the fourth quarter of 2010 the Waterloo based company had recorded six consecutive quarters of revenue increases.

Today, however, Sandvine President and and CEO Dave Caputo said the streak was about to come to an end. In a press release, the company offered guidance on its upcoming Q1 2011, saying it expects revenue to be in the range of US $18-million to $19-million. Caputo said that while the company is “…disappointed with our first quarter revenue, new customer wins in the quarter were at the highest level in over two years and reflect Sandvine’s continuing market leadership. We did not lose any notable deals in the quarter and I remain excited about our opportunities for 2011 and beyond,”

The news, nonetheless, sent shares of Sandvine reeling; by the close the company was down nearly 22% to $2.39. Sandvine’s stock had, in a nearly uninterrupted move, climbed from a low of $1.44 on August 30th of last year to a recent high of $3.47 on February 16th.

Sandvine sells technology that gives service providers a window into the world of their chaotic traffic. The buzz-phrase in this space is “deep packet inspection”, a technology that enables wireline and wireless networks to target data-overload issues. Deep packet inspection has been an area of strong growth of late. And if data from Boston-based market research firm Infonetics is to be believed, Sandvine’s recent troubles may be more of a bump in the road than a pothole.

Infonetics estimates that deep packet inspection will grow from just over $200 million in 2008 to a more than $1.5 billion business by 2014.” adding that while “…the net neutrality debate continues to dampen DPI investment in some markets, we are anticipating strong growth in emerging regions such as the Middle East and Asia.

Sales from the Asia-Pacific region were a major driver for Sandvine’s growth last year, and are a relatively recent phenomenon for the company. In 2010, sales to the region as percentage of the company’s overall revenue increase from 18.3% to 42.7%.