Spirent Communications shares have plunged in value after the company warned that annual turnover would be about 20 per cent lower.
The telecoms testing business saw its shares tumble by 31.3 per cent to 90.1p on Wednesday, making them the biggest faller by some distance on the FTSE 250 Index.
It said current economic conditions were causing many of its customers to put off investments, thereby affecting the timing of orders and leading to worse near-term visibility.
Major plunge: Telecoms testing business Spirent saw its share price tumble on Wednesday
Although the group observed strong demand in the second quarter, this slackened in the following three months, and a predicted rebound in September failed to materialise.
Demand for its high-speed Ethernet testing services has been badly impacted by heightened economic uncertainty in China, one of its largest markets, where the government has scaled back spending plans.
In addition, launches of standalone 5G networks have been ‘sluggish,’ the firm said, because of the difficulties related to constructing and operating a cloud-native core network.
As a result, Spirent’s order intake for the opening nine months of the year was 24 per cent down on the equivalent period last year, while revenue is forecast to be around a fifth lower.
The Crawley-based company does not anticipate its sales performance improving during the remainder of 2023. It also cautioned that its full-year operating profit will be ‘very materially’ affected by negative operating leverage.
Eric Updyke, chief executive of Spirent, said: ‘The near-term order book isn’t strong enough to support our final quarter expectations, and our outlook for the full year reduces accordingly.
‘Given the lack of certainty in the timing on our customers’ technology roadmaps, we are taking the necessary cost actions while being careful to protect those investments that enable us to maximise our long-term structural growth drivers.’
The group is confident that demand for 5G services will underpin future growth, with core network spending, such as on high-speed ethernet upgrades and cloud computing, predicted to grow over at least the next four years.
Spirent conducts comprehensive testing on mobile and Wi-Fi networks, as well as cybersecurity and cloud systems, for some of the world’s most famous technology giants and large businesses.
Analysts at broker Jefferies said: ‘We do not think there is any structural change in the industry which has reduced demand for the company’s products, and see current weakness as being cyclical.
‘We expect a meaningful recovery in orders and sales at some point, though there is no visibility on its timing.’
Nonetheless, the broker has slashed its target price on Spirent’s stock by almost half, from 340p to 195p, reflecting the firm’s weaker sales forecasts.
