By Adam Pasick, Reuters Securities

NEW YORK - Israeli-American telecommunications services firm Amdocs (NYSE:DOX) reported a 40% gain in fourth-quarter adjusted earnings despite a brutal technology sector downturn, beating Wall Street expectations.

Amdocs shares rallied in response to the earnings in after-hours trade. But analysts cautioned that the good news in the past quarter was offset by signs that business could slow in coming quarters.

"The fourth quarter itself was as much as we could have hoped for," said Legg Mason analyst Cato Carpenter. "They said there were no deferrals of projects from customers, and I think that caught a lot of people by surprise - no delays, no pushbacks."

Shares of Amdocs rose to $28.50 on the Instinet electronic brokerage system from Tuesday's regular close of $27.95.

Amdocs, which offers telecommunications billing software and customer-support services, said fourth-quarter earnings excluding acquisition-related charges totaled $78.3 million, or 35 cents a share, a penny ahead of consensus estimates.

That was up from comparable earnings of $56 million or 25 cents a year earlier.

Revenues rose to $415.4 million from $315 million. Net income including acquisition-related charges was $19.9 million, compared with $13 million in the year-ago quarter.

Asked how the company had managed to boost revenue and earnings in a spending downturn among telecommunication carriers, Chief Executive Avi Naor told Reuters, "Customer billing and customer relationship management (software) are mission critical - they need these things more than before."

Shoals ahead?
But there are signs of trouble in the quarters to come, an analyst said. License revenues of $41.6 million declined 15% from third-quarter levels of $48.5 million.

"That raises a bit of a concern," said ABN Amro analyst Keith Bachman, "in that license revenue is very profitable, and a leading indicator for service revenue."

Although the company reiterated that it expects 2002 revenues of $1.9 billion, that figure includes about $100 million from the October 4 acquisition of Nortel's Clarify unit, suggesting revenues from its core operations may come up short.

"Even though we have a very strong pipeline, and a lot of carriers are showing interest, at the same time there is a longer sales cycle than there was before," Naor told Reuters.

The company hired about 150 people in the fourth quarter, down from its original target of about 400, and its ability to predict 2002 revenue declined, Naor said in the conference call.

"When you look closely into the numbers themselves, you can see business is slowing," said Carpenter.

Still expects 2002 EPS of $1.52
Amdocs said it still expects 2002 earnings per share, excluding one-time items, of $1.52 per share. For the first quarter, the company expects earnings per share, excluding one-time items, of 35 cents on revenues of $420 million.

Analysts expected first-quarter earnings ranging from 34 cents to 36 cents with a mean of 35 cents, and 2002 earnings ranging from $1.44 to $1.53, with a mean of $1.50, according to Thomson Financial/First Call.

The company said it expects between 40 and 50 customer wins in 2002, and also announced its board had approved a stock buyback of up to 11 million shares, or 5% of shares outstanding.

"The stock buyback is noteworthy because it usually creates some momentum in the stock," said Bachman.