Spirent shares plummet by nearly a third following profit warning
Spirent shares plunge by almost a third after a profit warning
- Spirent shares were by some distance the biggest fallers on the FTSE 250 Index
- The telecom testing company said many customers were postponing their investments
- Order intake for the first nine months of 2023 was 24% lower than last year
Spirent Communications Stock have fallen in value after the company warned that annual sales would be around 20 percent lower.
The telecoms testing company saw its shares plunge 31.3 per cent to 90.1 pence on Wednesday, making them by some distance the biggest faller on the FTSE 250 Index.
It says current economic conditions are causing many of its customers to delay investments, impacting the timing of orders and leading to poorer short-term visibility.
Big plunge: telecom testing company Spirent saw its share price plummet on Wednesday
Although the group saw strong demand in the second quarter, this declined in the following three months and a predicted recovery in September failed to materialise.
Demand for its high-speed Ethernet testing services has been hit hard by increased economic uncertainty in China, one of its biggest markets, where the government has scaled back spending plans.
Additionally, launches of standalone 5G networks have been “slow,” the company said, due to the difficulties associated with building and operating a cloud-native core network.
As a result, Spirent’s order intake for the first nine months of the year was 24 percent lower than the same period last year, while sales are expected to be around a fifth lower.
The Crawley-based company does not expect its sales performance to improve in the remainder of 2023. It also warned that full-year operating profit will be “very materially” affected by negative operating leverage.
Eric Updyke, CEO of Spirent, said: ‘The near-term order book is not strong enough to support our expectations for the final quarter, and our full-year guidance is lowered accordingly.
“Given the lack of certainty around the timing of our customers’ technology roadmaps, we are taking necessary cost actions while being cautious about protecting those investments that allow us to maximize our long-term structural growth engines.”
The group is confident that demand for 5G services will support future growth, with spending on core networks, such as for fast Ethernet upgrades and cloud computing, expected to grow over the next four years..
Spirent conducts extensive testing on mobile and Wi-Fi networks, as well as cybersecurity and cloud systems, for some of the world’s most famous technology giants and major corporations.
Analysts at broker Jefferies said: ‘We do not believe there has been any structural change in the sector that has reduced demand for the company’s products, and view the current weakness as cyclical.
“We expect a meaningful recovery in orders and sales at some point, although the timing is unclear.”
Nevertheless, the broker has cut its price target on Spirent shares by almost half, from 340p to 195p, reflecting the company’s weaker sales forecasts.