By Steven Scheer
JERUSALEM (Reuters) - Allot Communications <ALLT.TA> <ALLT.O>, which supplies technology that allows telecoms operators to monitor and allocate bandwidth, posted a forecast-beating rise in quarterly profit as revenues rose more than 40 percent, helped by surging demand for fast internet on mobile devices.
However, the initial positive reaction that sent Allot's Tel Aviv shares 2.7 per cent higher by the close was tempered by concern over deal flow and the company's simultaneous announcement of its second acquisition in four months.
Allot's Nasdaq-listed shares slid 7 percent to $22.96 in early trading after Chief Executive Rami Hadar told a conference call that while deal flow was healthy, the deal-closing process is taking longer because of pricing issues in a challenging economic environment.
"They had a great quarter," said Northland Capital Markets analyst Catharine Trebnick, who rates Allot as "market perform" with a $28 target. "But investors are confused."
She cited worries over longer contract negotiations as well as the announcement that it plans to buy Israeli start-up Oversi Networks for $16 million in cash.
Traditional telcos and mobile operators are experiencing high demand for bandwidth because of strong sales of iPhones, iPads and Android-based mobile phones and devices, but providers are seeing revenue declining as unlimited data plans have grown more popular.
"Allot is benefiting from growth in mobile data and growth in data traffic in general," Nachum Falek, Allot's chief financial officer, told Reuters on Tuesday, adding that much of the rise in investment in expanding networks' bandwidth comes from streaming movies and video clips.
Video, Falek said, is likely to account for 60 to 70 percent of traffic in the next few years, up from 42 percent currently.
Allot's equipment allows telecoms providers to monitor data traffic and allocate bandwidth to where it's needed most - users streaming video at the expense of a slightly longer wait for another customer expecting a large file via email, for example.
"You want to see streaming video without buffering, but you don't mind getting an email a second later," Falek said.
Europe is Allot's largest market, and it also sells to Asia and Latin America. However, the company sees the United States as a key growth driver after a U.S. court ruling two years ago that allowed Internet service providers to slow traffic to sites such as YouTube or Hulu.
"The United States is a huge market in terms of opportunity," Falek said.
Allot earned 15 cents per diluted share excluding one-off items in the second quarter, compared with 10 cents a year earlier. Revenue rose 43 percent to $26.4 million.
The Israeli company was forecast to earn 14 cents a share on revenue of $25 million, according to Thomson Reuters IBES estimates.
Its planned purchase of Oversi, a provider of media caching for Internet video, follows its acquisition of Ortiva Wireless in May and is expected to close in the third quarter.
In addition to cash, Allot will pay up to $5 million based on Oversi's performance in 2012. Oversi is expected to contribute $2 million to Allot's quarterly revenue and reduce earnings per share by 2 cents in the fourth quarter before breaking even by the first quarter of 2013, Allot said.
(Reporting by Steven Scheer; Editing by David Goodman)