Transmode Holding AB (TRMO), Sweden’s second-biggest maker of network equipment, is betting it can continue its double-digit sales growth by helping fiber network owners expand capacity to handle a smartphone-triggered data explosion.
“Although this is a crowded market, only a few have a very good business because others have so much to focus on,” Chief Executive Officer Karl Thedeen said in an March 20 interview at the company’s Stockholm headquarters. Transmode sells only one kind of equipment and concentrates on small metropolitan fiber operators which may be overlooked by large suppliers such as its bigger Swedish peer Ericsson AB (ERICB), he said.
Transmode’s product is a box called a wave-division multiplexer that transmits information simultaneously in 80 colors of light, instead of just one. That raises bandwidth on fiber as much as 80-fold. Thedeen said Transmode’s sale of shares to the public in May helped raise its profile in the U.S., where the market for the multiplexers in regional and city networks is growing 12 percent a year. According to Infonetics Research, the growth rate will be 13 percent through 2016 globally.
“The operators need to compete on having very good bandwidth so I can’t see an end to the need for boosting capacity,” Thedeen said. Transmode’s market share of 3 percent in the $4.7 billion metropolitan market for the multiplexers hasn’t been a handicap so far, he said.
Among Transmode’s (TRMO) biggest customers is Virgin Media in the U.K., which provides so-called “backhaul” services to smaller mobile operators as well as cable TV. Transmode also sells to enterprises such as Transport for London and the Swedish Defense Forces for their internal networks and data centers.
One of the company’s key accounts in the U.S. is Kentucky Data Link, a unit of Little Rock, Arkansas-based Windstream Corp. (WIN), a wholesale network operator that supplies bandwidth to smaller mobile and Internet providers. The world’s biggest phone companies with their intercity and transoceanic networks are likely to buy equipment from larger vendors who also supply their other needs, Thedeen said.
“We may end up having an AT&T or Sprint sometime but our strategy is more centered around this alternative and cable. We are reasonably large but still manage to fly under the radar and take sizeable deals,” he said.
Transmode has risen 43 percent since the initial public offering on May 26. Sales grew 31 percent to 917 million kronor ($130 million) last year and the company’s adjusted operating margin was 18.3 percent. Sales are expected to rise 20 percent this year and 14 percent in 2013, according to the average of four analysts’ estimates. Ericsson, which is dependent on big operators, reported 1 percent revenue growth last year and will post a 3.8 percent sales increase this year, according to a Bloomberg survey of 32 analysts.
Temporary Desk Space
Thedeen estimates about 30 percent of metropolitan fiber networks have so been upgraded with multicolor multiplexers. The company works through Japan’s NEC Corp. in southeast Asia, Japan and Latin America and Thedeen is seeking other sales partners and will add service staff in its markets as it grows.
Transmode was formed in 2005 from the merger of two companies formed by former Ericsson engineers. Besides Ericsson, competitors include Alcatel-Lucent, Adva AG (ADV), and Nokia Siemens Networks. Transmode’s global sales force of 40 people work from home or temporary desk space to save rents and its 228 employees include about 65 programmers who write management software to differentiate from competitors.
To contact the reporter on this story: Diana ben-Aaron in Helsinki at email@example.com