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Cisco Systems, Inc. (CSCO), Telular Corporation (WRLS): Time to Look at the Network Equipment Space

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It has been a rough few years for the network equipment manufacturers, led by giant Cisco Systems, Inc. (NASDAQ:CSCO), as operators cut back equipment purchases during the financial crisis and new technologies lowered corporate spending requirements. However, the rise of remote asset management activities, like usage-based auto insurance and positive train control, has made reliable wireless networks more important than ever. Recently, private equity has been finding value in the sector, including Avista Capital Partners’ offer to acquire Telular Corporation (NASDAQ:WRLS) for $12.61 per share in cash or roughly $253 million.

Cisco Systems, Inc. (NASDAQ:CSCO)

Telular Corporation (NASDAQ:WRLS) is a niche provider of customized wireless devices that primarily allow its customers to remotely monitor security systems, storage tank levels, and inventory purchases. The company also moved into the over-the-road asset tracking business with its acquisition of SkyBitz in 2012. After modest sales growth in 2010 and 2011, Telular Corporation (NASDAQ:WRLS) found much better overall momentum in 2012, with a 76% gain in total unit sales of its hardware devices.

In FY2013, Telular Corporation (NASDAQ:WRLS) has continued to report strong results, with increases in revenues and operating income of 48.0% and 49.9%, respectively, versus the prior-year period. The company has benefited from double-digit growth in its event monitoring segment, as well as solid gains in its acquired asset tracking business. In addition, Telular Corporation (NASDAQ:WRLS) has reached critical mass in its operations, with a global subscriber base of over 600,000, which has driven economies of scale and higher profitability. However, with Telular Corporation (NASDAQ:WRLS) soon to be going private, where can investors find intriguing opportunities?

CalAmp Corp. (NASDAQ:CAMP) has a similar focus on the remote asset management business, while avoiding Telular’s customer concentration risks in the security system industry. CalAmp also sells customized wireless devices, but it enjoys a more diverse mix of customers that ranges from managers of automobile fleets to owners of energy pipelines. Like Telular, CalAmp has gained from significant economies of scale in its operations, with over 2 million hardware devices currently in use.

In its latest fiscal year, CalAmp Corp. (NASDAQ:CAMP) grew its top-line at the fastest pace of the past five years, with a 30.2% gain over the prior year. The company benefited from larger automobile fleets around the world and customers’ increased desire to create efficiencies in its employees’ usage of assets. CalAmp Corp. (NASDAQ:CAMP)’s operating income also rose sharply, up 116.8% during the period, due to comprehensive cost savings from its decision to fully outsource its manufacturing activities in 2012.

Looking ahead, CalAmp Corp. (NASDAQ:CAMP) is well positioned for future growth as businesses and governments increasingly want to use real-time data on their assets in

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