Calnex grabs the bull by the horns as going gets tough

Calnex chief executive Tommy Cook and his team have taken the bull by the horns in bringing an early end to a 12-year sales partnership that accounts for the lion’s share of the Scottish firm’s revenues – a decision that’s not to be taken lightly, particularly following a year of sharply declining sales.

Mr Cook, who set up Calnex in 2006, has nothing but praise for the working relationship with Spirent but believes now is the right time to “cross the Rubicon”. It follows the announcement in March that US telecommunications testing giant Keysight Technologies – whose products are similar to those of Calnex – is set to take over London-listed Spirent in a deal worth nearly £1.2 billion.

“The Keysight acquisition kind of triggered this because really, our product, we’ve got a bit of overlap with them, so it was hard to see that we would get the same quality of relationship that we had with Spirent,” he said.

READ MORE: Not the best of times for Calnex, but not the worst either

The uncomfortable truth is that Spirent is the main sales channel at Calnex, accounting for nearly three-quarters of revenues and servicing the massive telecoms equipment markets in the US, India and China. But in the true spirit of turning adversity to advantage, Mr Cook is embracing the opportunity for Calnex to take greater hold of its own destiny.

There is the chance, for example, of further upping profit margins in those areas where the company decides to sell direct to customers. In the US this likely entails California, Texas and New Jersey, where Calnex has large sales volumes.

The company will have to invest in its own sales, finance and logistics teams to get this up and running but in the meantime another US partner, CPU, has said it is ready to immediately pick up the slack. CPU is also said to be prepared to operate as a regional sales partner in other parts of the US.

READ MORE: Calnex falls into first half loss as telecoms spending slows

It is a similar story in India and China, leading Mr Cook to conclude that the switchover is “not as scary as what it might look like”.

Annual results released this morning by Calnex for the year to the end of March show a 41% decline in revenues to £16.3m amid a downturn in spending across the global telecoms sector. The previous year’s pre-tax profit of £7.2m tumbled to a loss of £384,000 but eked back into the black after including £424,000 of R&D tax credits.

Spending across the telecoms sector has yet to show any meaningful signs of recovery, so the next several months will be a continuing period of hard graft at Calnex. The verdict on these efforts will be determined by the scale of the Lothian company’s financial rebound when the market emerges from its slump.