Acme Packet (NASDAQ:APKT), which develops technologies for Internet Protocol (IP) networks, continued the recent IPO craze. Priced at $9.50 last week, the stock is now trading at $17.20. No doubt, the company is growing feverishly. But tough competitors are starting to enter the market.
Acme is a young company, having launched its first Net-Net products in 2002. The technology is known as session border controllers, or SBCs.
To understand how SBCs work, let's take a look at IP networks. Originally, they were meant to transfer files and provide for website traffic. Basically, such functions can allow for a certain degree of delay. But what if you want to make a phone call using an IP network (i.e., VoIP)? Or you want to deliver video?
That's what an SBC solves; the technology allows for reliable and secure transmissions of data over IP networks. Actually, the technology has proved to be much more effective compared to other approaches, such as routers, data firewalls, and softswitches.
How good? Well, Acme's customer base is a testament to the power of its technology. Among its 300 customers are Korea Telecom, Telstra Corporation, Earthlink (NASDAQ:ELNK), Pac-West Telecomm, and Qwest Business Resources.
So far, Acme's competition is primarily from startups like Newport Networks and NexTone. There is also competition from Juniper Networks (NASDAQ:JNPR) because of its acquisition of Kagoor. However, based on its customer adoption, Acme is a standout. Besides, the company has a product line with rich features and applications, as well as strong service support.
And the market opportunity is certainly attractive. According to Infonetics Research, the market for SBCs is expected to grow from $86 million in 2005 to $571 million in 2009.
As for Acme's financials, they are stunning. For the first six months of 2006, revenues were $38 million, which was up from $16.6 million in the same period last year. Moreover, the company hit positive profitability by posting $11.1 million in net income so far in 2006.
Given the growth of the SBC market -- and Acme's competitive position -- the company is likely to continue to impress investors. However, this also is likely to be a stock that gets the attention of heavy momentum traders, so expect lots of volatility. Additionally, more competitors are likely to jump into the fray. For example, Cisco (NASDAQ:CSCO) recently launched its own SBC product, which should also get lots of traction and, over time, may put a crimp in Acme's business.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
