Robert DeFrancesco s

TechStockProspector.com
August 29, 2011

Allot (ALLT), A Mobile-Data Play, Falls 50% From July High

-----------------------------------------------------------------------------------------------------Tech-Stock Prospector is now available in the Amazon.com Kindle Store in the Business & Investing section of the online magazine stand. Here s the Kindle link: http://www.amzn.com/B004T6Z0ME -----------------------------------------------------------------------------------------------------We ve all heard the statistics about the phenomenal growth expectations for mobile data usage. By some estimates, close to 70% of all mobile traffic next year will be video. One company that s benefiting from this trend is Allot Communications (ALLT, $12.72), a provider of hardware and software that utilizes deep packet inspection (DPI) technology to allow service providers to actively manage data over mobile and wireline networks as well as deploy value added services. During the recent market pullback, Allot shares dropped 50.7% from the July high of $19.15, hitting a low of $9.44 on August 19. The market cap now stands at $307 million. The company, which is debt-free, has cash & investments on the balance sheet of $63.5 million. According to research firm Infonetics, the DPI product market is expected to grow six-fold during the period from 2009 through 2014, hitting $1.5 billion. Telecom operators utilize DPI for traffic shaping, advanced network security, compliance, target advertising and subscriber controls. With the increased use of smartphones and tablets, consumers are downloading, streaming, browsing and sharing content on the go more than ever. Service providers are faced with increased network usage (and congestion) that does not necessarily translate into added revenue. Using service monitoring, operators can better understand how their subscribers are consuming network resources in real-time (and historically) so as to better manage utilization and plan for network capacity expansion more efficiently. Allot s Service Gateway Sigma E is the newest series of carrier-grade, highly scalable DPI-based platforms for fixed and mobile networks. It provides built-in compatibility with 3G, 4G/LTE and converged network environments. These modular platforms support up to 8 million subscribers and process Web traffic at speeds of up to 160 Gbps. Clustered configurations can scale to 1 Terabit per second of aggregate throughput. For the June quarter, Allot reported revenue of $18.5 million, representing growth of 36% year over year and 8% sequentially. The company received 18 orders from large service providers (up from 16 in Q1 and 13 in Q4), five of which were with new customers. Allot signed its first contract with a Russian Tier-1 operator via its partnership with Nokia Siemens Networks. While the company does

not disclose its top customers, the two largest are thought to be Vodafone and Virgin Media. I consider Allot a special situation because of its small market cap and the fact that revenue is well below $100 million annually. The company derives about 70% of its sales from EMEA, with just 17% coming from the Americas. The majority of its mobile business is with smaller carriers in Europe and Asia, but as much as 40% comes from Tier-1 providers in any given quarter. According to Infonetics, Allot has a 15% share of the standalone DPI market, which is good enough for third place. Sandvine is #1 with a 28% share, while Cisco Systems is a close second, holding a 24% share. Arbor (now owned by the Tektronix unit of Danaher) is in fourth place with a 7% share and Procera Networks (PKT) is fifth with a 6% share. One new growth avenue for Allot is value-added services (VAS), such as intelligent charging, content controls and video caching. According to Avian Securities, VAS accounts for about 10% of product revenue. Allot ChargeSmart, which is built on the Allot Service Gateway, is an intelligent charging service that allows service providers to translate rising network usage into proportional revenue growth. It enables operators to monitor, meter and charge for subscriber consumption of over-the-top (OTT) applications and content. ChargeSmart accurately identifies the OTT applications in use by individual subscribers and provides detailed usage information to online and offline charging systems, thereby allowing service providers to monetize network traffic. The goal is to increase customer choice and ARPU through personalized subscriber pricing models. It also enables revenue sharing with application and content providers. Also part of the gateway platform, the new CellWise offering, launched in March, allows mobile operators to manage traffic down to the individual cell and alleviate backhaul congestion in real time. Service providers can reduce operating expenses via intelligent traffic management while at the same time keeping customer churn in check by enhancing the online experience for mobile data users. For more on the tech sector, see the August 2011 issue of Tech-Stock Prospector, which is available at TechStockProspector.com and in the Amazon.com Kindle store. Here are some of the topics covered in latest issue: *Buy the dip in tech stocks? *A networking security play *Q2 tech earnings winners *A mid-cap software company builds its pipeline *Riding the business-intelligence wave *LinkedIn delivers, but still overvalued *A new Apple price target *Crunch time for Juniper Networks *Playing the 4G wireless transition *Keeping track of social-networking data pays off *A booming cloud software provider

*Two small-cap software specialists To place an order, simply call TSP Customer Service at 800-392-0998. -----------------------------------------------------------------------------------------------------Tech-Stock Prospector is now available in the Amazon.com Kindle Store in the Business & Investing section of the online magazine stand. Here s the Kindle link: http://www.amzn.com/B004T6Z0ME -----------------------------------------------------------------------------------------------------Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20 years of experience covering the tech sector. He is a former senior writer with Louis Rukeyser s Wall Street. TechStockProspector.com, launched in 2003, is an investment-research service focused primarily on the networking, storage, security, wireless and software sectors. Annual subscription: $350. For more information or to place an order, call 800-392-0998.