Spirent Communications (LON: SPT) shares are down 33% on the publication of the results. As we can imagine from the SPT share price reaction, those results are not good. The report opens with “very challenging market conditions” which is corporate speak for heck, it’s bad out there.
The actual results: “Trading impacted by very challenging telecommunications market conditions” OK, so at least they warn us that things are going to be bad. “Spirent Communications plc ("Spirent", the "Company" or the "Group") (LSE: SPT), the leading provider of automated test and assurance solutions for next-generation devices and networks, today issues the following Trading Update for the nine month period up to 30 September 2023. The telecommunications market is extremely challenged at this time, with Spirent's largest customers delaying their expenditure and technology investments. The uptick in demand we witnessed in the second quarter dissipated over the summer months and the anticipated rebound in September has not happened.”
Now such slowdowns do happen. And often enough they rebound too. We saw some of this happen with Darktrace and Shearwater in a related market, cybersecurity. Everyone agreed that more investment to keep up with the problem was really essential - but it was still terribly difficult to get management - any management - to part with the money. That did change, eventually, but not before 40% and more was wiped of provider share prices.
Spirent Communications share price from Google Finance
It gets worse, of course “As a result, there is not enough near term strength in the orderbook to support our expectations for the final quarter trading, and accordingly we reduce our outlook for the near term. The impact of negative operating leverage will very materially affect operating profit in this financial year.” Given this slowdown, people just not being willing to spend, we can’t see this turning around within this financial year. Negative operating leverage could mean almost anything but our assumption is that it means that lower revenues will feed straight through to the bottom line and so reduce profits substantially.
And, ah, yes. A substantial part of the business is in China which has certain well known macroeconomic problems at present. So we shouldn’t, perhaps, look for any short term turnaround.
Given all of this 33% down seems a fairly moderate market reaction to be honest.