There are changes going on at the top of Calabasas-based Ixia. (NASDAQ: XXIA). The company hired a new president and COO, Atul Bhatnagar in September. This month, Chairman Jean-Claude Asscher announced he will be retiring and CEO Errol Ginsberg will take over that role effective Jan. 1. The senior vice president of worldwide sales was replaced and the executive vice president of operations, Sam Bass, resigned to rejoin his old team at a new company, Xirrus. A search is underway for Bass’s replacement. Technology sector analyst, Sam Wilson of JMP Securities, said he sees the changes as generally positive. “The company needed managers that have more experience running much larger companies,” said Wilson. He explained that Ixia has had a surge in spending mostly due to a hiring binge that more than doubled its personnel in the past two years. Unfortunately, until the past two quarters, revenues were not keeping pace with expenditures. “They’ve had a rough two years,” Wilson said. “They were one of the last IPOs of 2000. They had a great run from 1998 to 2001 and then crashed with everyone in the technology meltdown. They recovered from that but then stagnated for the past two years.” GAAP net income for the third quarter of 2007 was $1.9 million, or $0.03 per diluted share, compared to net income of $8.1 million, or $0.12 per diluted share, for the third quarter of 2006. The numbers are a bit misleading, according to Ixia CFO Tom Miller. “This gets really complicated,” said Miller, explaining that in 2006, the company had to correct some accounting procedures that related to the timing of when certain revenues were reported as received. With that behind them, Miller said Ixia has put together a couple of sequential quarters of revenue growth and has “started to make some moves internally to show the street we are going to put a plan together for growth in the future.” Analyst Wilson said it was analogous to getting a battleship turned around and going in the right direction. “Their operating margins in the first quarter of this year bottomed out at 6 percent,” he said. “They’re actually starting to show accelerating year-over-year revenue growth and expanding their operating margins. That’s the sweet spot for tech stocks.” Increase in share price This explains why Ixia share prices have increased throughout the year, said Wilson, gaining 7.2 percent since January. The company, which makes Internet protocol (IP) test equipment, benefits from the growth of Internet usage and what Miller referred to as “triple-play services” the triple play being voice, video and data all offered by the same carrier. It’s a fairly narrow niche with limited competition. That narrowness concerns Wilson, who said his questions about where Ixia is placing its growth bet have not been answered. Is the company planning on taking business away from competitors or moving into other market niches? It’s a little of both, said Miller. “The company is looking for new products that sort of organically extend our product line and also for inorganic growth through acquisitions.” They’d also like to change the fact that more than 25 percent of sales come from just one company, Cisco Systems Inc. The company’s other large customers, such as Nortel, Alcatel and ATT, are all each well under 10 percent of revenues. “We always tell investors and analysts that one of our challenges is to decrease our independence on Cisco by growing our business outside of Cisco,” said Miller. “We certainly don’t want to lower the Cisco revenues. We just want to sell more to Nortel, more to Juniper and more to the other large carriers, both domestically and internationally.” Analyst Wilson said that makes sense, adding, “If Cisco catches a cold, Ixia catches pneumonia.” International growth One place to look for growth is in the international arena. Currently about 70 percent of revenues are from U.S. sales even though nearly half the workforce is located overseas. “We’re a very international company,” said Miller. About half of personnel are located at Ixia’s research and development centers in India and Romania. Most of the remaining employees, about 325, are in the corporate headquarters with the rest in sales offices scattered throughout tech hubs like Santa Clara, Boston and Raleigh-Durham. As mentioned previously, the company made a big investment in its sales and marketing team but had not seen revenues increase accordingly. “This is one reason we brought a new sales and marketing director on board,” said Miller. “We have about 160 people in the sales force so we said let’s get more out of them, let’s manage them more effectively.” With spending seemingly under control and revenues increasing modestly, Miller said the outlook is positive. “We’re very profitable,” said Miller, “and we throw off a lot of cash.”