Telecom Industry Looks Promising

If its one thing I’ve noticed, it’s that the telecommunications industry is on the comeback trail. Previously, the entire sector was in serious turmoil because medium- and large-sized telecom companies kept buying up other telecom companies at high valuations. The Internet hype didn’t help.

Now, thankfully, there are a number of telecom companies who are experiencing sustained growth in their operations. Not so much in large companies and not so much in very small telecom companies, but many mid-sized companies are now doing well.

Take, for example, ECI Telecom Ltd. (NASDAQ/ECIL). This mid-cap Israeli company sells network, routing, and access equipment for optical telecommunications networks.

In the first quarter of 2006, the company’s revenues grew a solid 11% to $162 million. The company expects sequential growth in both revenues and net income for the remaining quarters of this year, and it just recently won a five-year contract worth $75 million to supply BT Group in Britain with new broadband products.

A much smaller company than ECI Telecom that’s really got some good operating momentum is TTI Team Telecom Intl. Ltd. (NASDAQ/TTIL). This company, which is also based in Israel, makes network management software for sale in the U.S. market.

The company’s most recent first quarter of 2006 saw it generate revenue growth of 37% to $12.5 million. Operating income for the quarter grew to $0.7 million, compared with an operating loss of $5.1 million for the same quarter of 2005, and net income grew to $0.8 million, or $0.04 per diluted share, compared to a net loss of $6.9 million in the comparable quarter.

Really, I think it is important to have some telecom exposure in a balanced equity portfolio. Just like energy, we all use telecommunication commodities on a daily basis, and companies continue to replace customer service personnel with interactive telecommunications equipment.

If I had new money to commit to the stock market right now, I’d commit some to the telecom industry.