There's a long list of companies out there where investors are hoping that carriers finally get back to spending this year, a list that includes Alcatel-Lucent (NYSE:ALU), Adtran (Nasdaq:ADTN), Juniper (NYSE:JNPR) and Acme Packet (Nasdaq:APKT). While Acme Packet enjoys good share in the session border controller market (SBC) and ought to benefit from adoption and migration to Voice over LTE (VoLTE) and IMS, bears argue that competitors and alternative technologies will steal much of that potential.

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Current Results Look Ugly, but Bulls Look Ahead
Acme Packet is definitely a story about the future, as today's results are pretty dismal. Revenue fell around 4% from the year-ago level and 15% from the prior quarter, as major carriers like Verizon (NYSE:VZ) and AT&T (NYSE:T) simply aren't spending as much as analysts expect.

I'm not all that bothered by Acme's revenue report; it's a lousy carrier spending market and we all know that. What does bother me is what looks like weak expense control. Gross margin slid about two points from last year and a point from the prior quarter, while operating income plunged significantly over both time periods. In particular, I find the sharp increases in sales/marketing and G&A expenses as worrisome.

SEE: Can Earnings Guidance Accurately Predict The Future?

Maintained Guidance Leads to Relief
What seems to have encouraged the bulls on Acme Packet is that the company basically reiterated its guidance for 2012, including 10% revenue growth and 20% bookings growth. Although Wall Street seemed happy that management didn't cut the numbers, this guidance may not be all it's cracked up to be.

For starters, Acme Packet is going to have to see a pretty strong second half for these numbers to come to fruition. It's not that that's impossible, it's just that it ups the risk. It's also noteworthy that Acme Packet is laying out some ambitious plans for growing its enterprise business this year.

I'm also concerned about the competition. Rival Sonus Networks (Nasdaq:SONS) would appear to be expecting considerably more growth in its SBC business, as companies like Cisco (Nasdaq:CSCO) and Juniper (NYSE:JNPR) are both looking to carve out more of their share of this market with routers that incorporate SBC functionality.

There Are Some Reasons to Be Optimistic
It's not all doom and gloom on Acme Packet, though. The growth opportunities in VoLTE do appear real, though bears will quickly argue that there's no guarantee that APKT will see the equipment orders from that transition.

Perhaps more interesting over the next few years is the potential from widespread IMS (IP Media Subsystem) adoption. This architecture gives providers a chance to regain control over "over-the-top messaging" activity from companies like Facebook, Microsoft's (Nasdaq:MSFT) Skype and Apple's (Nasdaq:AAPL) iMessage. That activity represents a lot of traffic and revenue potential, and adoption of IMS will require SBCs at the borders of mobile networks - a meaningful sales opportunity for Acme Packet.

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The Bottom Line
Acme Packet's business doesn't lend itself especially easily to long-term discounted cash flow analysis, mainly because I see this business as following the same sort of roller-coaster pattern we've seen at companies like Ciena (Nasdaq:CIEN), Tellabs (Nasdaq:TLAB) and Juniper.

In other words, this will be a great stock to own if/when the carrier spending rebound materializes and Acme Packet can maintain (or extend) its market share lead. Of course, what goes up also goes down, and this will be an exasperating stock to hold through a full cycle. Consequently, valuation is almost moot - the decision to buy today really rests on your expectations regarding carrier spending and Acme Packet's ongoing place in the food chain.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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