Robert DeFrancesco’s

TechStockProspector.com
November 30, 2010

Acme Packet CEO Bullish At Credit Suisse Tech Conference

Speaking today at the Credit Suisse 2010 Technology Conference, Acme Packet
(APKT, $48.98) CEO Andy Ory made several upbeat comments, which sent the stock
advancing 10% on heavy volume of 2.97 million shares. It hit a new high at $49.49.

Here’s a rundown of Ory’s remarks:

*Even at 50 cents on the dollar, the TDM gateway replacement market represents a
$10-billion opportunity.
*The company’s largest enterprise account is currently worth $5-$10 million. In
North America, Acme Packet is now seeing individual enterprise deals worth more
than $1 million each.
*The government vertical represents “a very large opportunity,” especially at the
state and local levels. The public sector will account for less than $10 million in 2010
revenue, so there’s a lot growth potential. While the government business is small,
Acme Packet is not seeing the slowdown witnessed by Cisco.
*APAC has the potential to be as big as EMEA (now 25% of revenue) because of
growth initiatives in Japan and China.
*The competitive disposition “has never been better” against networking giants
Cisco Systems and Juniper Networks as evidenced by recent market-share gains.
*”We generally win” when going up against Cisco in the enterprise.

On October 28, 2010, I wrote this about Acme Packet:

Acme Packet (APKT, $39.55) reported Q3 EPS of 20 cents, one cent above the
consensus estimate, on revenue of $56.6 million (+55.9% y/y), vs. the consensus of
$55 million. Product revenue rose 8% sequentially to $45.3 million, driven by
increased ASPs and overall unit growth (especially the 4500 and 3820). Gross
margin came in at 83% and operating margin at 37.7%. CFFO totaled $9.7 million
and Acme Packet ended the quarter with cash/investments of $237 million.

Acme Packet’s products are increasingly shipping with a higher software

component. The company sees gross margin in the low-to-mid 80% range
throughout 2011. Management said visibility remains good, with 55% to 60% of
business in the bag (from deferred and backlog) at the start of each quarter. About
80% of revenue comes from existing customers.
For 2010, the company now sees total revenue growth of 56%, up from the previous
estimate of 53%. Initial 2010 guidance (given in the fall of 2009) called for growth of
20%. Management now says 2011 revenue growth should come in around 30%.
That’s probably conservative too. But we’ll go with it for now.

With 2010 revenue of around $220 million, 30% growth for next year indicates
revenue of $287 million. Per-share earnings for 2011 should come in at $1.00.
Applying a forward P/E of 45 (PEG of 1.5 on estimated growth of 30%) to that
estimate generates a fair-value target of $45 a share.

Rob DeFrancesco is a former senior writer with Louis Rukeyser’s Wall Street.

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