Incoming orders exceeded shipments. Most of those deals already were in late stages of negotiation. And while Allot did add two new large customers, most of the backlog added came from existing customers. Financial results probably will remain fairly good through the end of 2012 due to the momentum built up in earlier periods. But the company indicated that demand has begun to moderate because of economic factors. Several prospective deals are been stretched out or scaled back as network operators reduce capital spending budgets. That could be a short lived scenario if data traffic keeps proliferating. The cell phone industry is approaching saturation in most developed markets, though. So the growth curve could start bending lower. Compression technology could help existing networks handle more traffic, as well. So less investment may be required in future periods to keep pace.
We are reducing our 2012 earnings estimate by a nickel to $.60 a share. We also have lowered our 2013 figure to $.70-$.75 a share from $.80 a share previously. Our figures assume margins were stay at elevated levels. Competitive pressure and economic issues might exert greater pressure on profitability. The long term outlook continues to be favorable. Allot has a strong technology position in a dynamic market with plenty of growth potential. But orders are starting to moderate, the stock price trades at a high price in relation to earnings, and pricing pressure is apt to increase. The company tries to offset hardware price declines by adding more software content. There's a limit to how far that strategy can go, however. Our advice is to close out positions and reinvest the proceeds in a special situation with better risk reward characteristics.
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