Calnex looks to growth in new markets as sales soften

“The component shortage that everybody faced was really quite torrid,” he said. “Probably this time last year, with hindsight, you would say it was at its worst.

“We’ve definitely come out of the back of that now but it really took a lot of energy on the ground, working with our contract manufacturer, Kelvinside, and really that shows the value of the strength of that relationship we have with Kelvinside, because it took a lot of energy to chase replacement components.”

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The company’s growth since listing on London’s Alternative Investment Market (AIM) in October 2020 has been driven by the expansion of cloud computing and the roll-out of 5G mobile networks. However, Calnex warned in March that its financial performance for the coming year will likely fall short as customers have delayed orders amid concerns about the global economic outlook.

“We’ve seen with all the other big players that are listed, their statements are all saying the same thing – the market has gone a bit soft,” Mr Cook said. “That’s kind of the way the beast works.

“When there are troubles, [customers] slow down capital spend. You can predict that’s what they are going to do because it’s the easiest lever for any company to pull – you’re not dealing with people, you’re dealing with equipment.”

While reluctant to predict when demand might firm up Mr Cook noted that the fundamental market drivers are “still there” despite large-scale layoffs announced in recent weeks by some major tech companies such as Amazon and Facebook owner Meta.

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“The move to cloud computing [and] the build-out of data centres is still moving forward even though some of these big hyperscalers have gone through a bit of downsizing,” he said. “Around their data centres, from what we can see, they’re still piling on.”

Calnex secured its first significant contract with Meta during the past year, and seed unit sales into two other hyperscale operations providing computing and data storage. With demand for data centre capacity set to increase requirements for processing power, Calnex believes this will provide opportunities for its specialist synchronisation technology to improve network efficiency.

The company has for years produced an array of technology for testing mobile network equipment and expanded into the applications testing market with last year’s £3.5m acquisition of iTrinegy. The former focuses on the smooth running of infrastructure, while the latter tests how applications are running on top of the infrastructure.

“It has taken us to defence accounts,” Mr Cook said. “Obviously defence spending is going up at the moment around the world, so it gives us a good product to go and speak to some of the federal accounts about. That’s an area this year that we hope to start seeing more growth.”

READ MORE: Calnex says confidence still intact despite disruptions

Chief financial officer Ashleigh Greenan said the company will hold its headcount of 155 steady during the coming year even though revenues are expected to come in about 10% lower.

“We are not hiring very many people in [the coming year], we have a got a couple of graduates coming in but apart from that our headcount will remain static, but we are retaining that cost base in order for us to meet the demand when it comes back,” she said.

House broker Cenkos is anticipating a decline in revenues to £24m in the coming year with profits falling to £4m, but added that the balance sheet remains “strong”: “With an increased customer base and broadening product portfolio Calnex remains very strongly positioned to return to a long-term growth trajectory once customer budgets are released and normal ordering cycles return.”

Shares in Calnex closed yesterday’s trading more than 8% higher at 107p.