Subex Azure has slashed its revenue and profits forecast. For the financial year ending March 2008, the business is now forecasting profits after tax of US$26m, down from US$38m. Revenues are now expected to be US$130m; previously the advice had been US$150m. See here for the details from Subex Azure. The drop is blamed on the delay of US$20m sales to a single customer.
This manifest dependence on a few big customers belies the rosy stories that analysts give about the growth of the revenue assurance market. If Subex Azure, which boasts of having 32 of the 50 biggest operators amongst its clients, can be this vulnerable to the decisions of a single operator then their rival suppliers are at even more risk of erratic swings in earnings. But the information that even Subex Azure is dependent on a very few big contracts is already out there. Their Q1 advice made that plain: 20% of revenues from a single customer, over two thirds of revenues from just five customers.
The good news, depending on who you are, is that Subex Azure is going at full speed with shifting jobs to India. Aggressively cutting costs is one way to generate shareholder value, but is pretty depressing for an industry that likes to promise it can deliver sky-high returns on minimal investment. Whilst cost management is the message for shareholders it was not enough to stop a 13% drop in its stock.
For now, buying into revenue assurance is risky. Whether you are a telco buying tools and services, or an investor looking for good picks in the software industry, be warned that the returns on revenue assurance may not be as great as promised.
