On Monday, Needham initiated coverage on Viavi Solutions shares (NASDAQ:VIAV) with a Hold rating, citing challenges the company faces in expanding its opportunities in AI infrastructure without the acquisition of Spirent.
The analyst from Needham pointed out that Viavi is in a difficult position due to the majority of its Test & Measurement (T&M) business being dependent on telecom demand, which is currently experiencing a downturn.
The downturn in telecom demand, referred to as a "telecom winter," has been attributed to a boom/bust cycle in supply chains and subsequent challenges in monetizing 5G technology. These factors are resulting in decreased capital expenditure (Capex) and operational expenditure (OpEx) spending by telecom companies.
The recovery in Network Service Enablement (NSE) is expected to be gradual, potentially extending into the entire 2024 and even into 2025. Still, the Optical Security and Performance (OSP) segment of Viavi's business is reportedly stable.
Viavi Solutions faces a strategic decision regarding Spirent, as Keysight Technologies (NYSE:KEYS) has made a topping offer. Viavi could either raise its bid, potentially offering a lower number of its own shares, or wait to acquire any assets that Keysight might be compelled to divest due to overlap. The statement from Needham highlighted that without Spirent's Layer 2-7 monitoring technology, AI is likely to contribute only modestly to Viavi's growth.
Needham concluded its remarks by stating that it will remain on the sidelines, awaiting a clear catalyst before changing its stance on Viavi Solutions. The firm is observing the situation to see how Viavi will navigate its options regarding Spirent and the broader challenges it faces within the telecom industry.
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