PART 1

Emerging Growth Research, LLP

Industry Report Cisco Systems (CSCO) - Hold Procera Networks (PKT) – Strong Buy SandVine Corp. (SVT) - Buy Allot Communications (ALLT) - Hold Joseph Noel Jnoel701@yahoo.com Emerging Growth Research San Francisco, California 925.922-2560 Analyst Certification I, Joseph Noel, hereby certify (1) that the views expressed in this research company report accurately reflect my personal views about any or all of the subject securities or issues reflected in this company report, and (2) no part of my compensation was, is, or will be directly or indirectly related to specific recommendations or views expressed in this company report. February 8, 2009		Breaking the Traffic Management Deployment Logjam - As the Rules Have Become Clearer Deployments Are Beginning at a Rapid Pace Cisco, Procera Networks, Sandvine Corp. and Allot Communications - How Do They Stack up and which will be the Winners Executive Summary We believe 2009 will be a breakout year for the traffic management and deep packet inspection subsector of the networking industry. Internet traffic continues to grow at a torrid pace, mainly led by video-oriented applications. This growth in traffic threatens to swamp the world's Internet Service Providers (ISPs), potentially leading to catastrophic failure of the Internet. ISPs and telecommunications carriers are faced with many issues in selecting strategies, products and services to manage this issue. Initial traffic management strategies invoke policies of simply disconnecting some users who were viewed by the ISP as abusers of network resources. In particular, large file transfers using BitTorrent, a peer-to-peer file transfer technology, were an initial target of such policies. Many powerful corporate and government entities actively pushed the Federal Communications Commission (FCC) to ban these policies, ultimately resulting in a “wrist slap” of the country's largest ISP, Comcast, from the FCC. Over the past few months, many, but not all, of the competing factions have compromised on a set of policies that will allow certain less aggressive network management policies to be enacted by ISPs. Cox Cable, the country's third-largest ISP, recently issued a policy statement discussing how it will implement an application based prioritization policy that will delay some types of traffic, such as large file transfers, during periods of peak demand. While some parties are still not happy with this policy, the ISP industry nevertheless feels it now has a set of parameters on which sound traffic management policies can be set. We believe this signals the beginning of a period of much more aggressive rollouts of traffic management systems. We believe this will be beneficial to several vendors within this subsector of the networking industry. In particular, we are excited about the revenue growth prospects for Procera Networks (ASE:PKT) and we are actively recommending purchase of the Company's shares at current levels. We recently raised our revenue estimates and we are predicting aggressive growth throughout 2009. We also believe Sandvine Corp. (TSX:SVC;AIM:SAND), the incumbent provider at many ISPs, will also benefit from this renewed growth. Overall, we believe Procera has a superior platform, but we recognize that unseating incumbent vendors is extremely difficult. While we believe Procera will begin taking market share, we expect Sandvine to remain an important part of ISP traffic management strategies for an extended period of time. Both are strong companies and worthy of investment by risk adverse small cap investors seeking superior returns. Cisco Systems is also an important player in this market, but considering traffic management is a very small portion of revenues, we do not believe investors can play Cisco relative to the growth of traffic management. We are very conservative relative to owning shares of Allot Communications (Nasdaq:ALLT), because revenue growth has been elusive and restoration is uncertain. 2009 and 2010 are likely to be years of strong revenue and earnings growth for companies in this sector. All of the vendors in this space will likely operate at gross margins in excess of 80%, possibility as high as 90%, at full production levels. With relatively limited sales and marketing resources required to successfully service this market and only moderate R&D expenses being required, operating margins for these vendors are likely to be very strong. Additionally, the major players in this space have strong balance sheets and are likely not to need additional cash to execute their business plans. With the strong growth and high margins likely to be experienced by these companies, we believe the major network and/or software players will likely show acquisition interest at some point during 2009. Simply put – The Internet traffic management sector should boom during 2009 and well into 2010. PKT is our top pick, but we believe an investment in SVC is also sound. We are conservative on ALLT. 2009 - The Breakout Year for Traffic Management and DPI We believe 2009 will be the breakout year for traffic management and deep packet inspection systems for several reasons. The most important of these is simply that video-oriented traffic on the Internet continues to grow at a rapid pace and is reaching critical levels for the vast majority of Internet Service Providers (ISPs). The second major reason we believe significant growth in this subsector of the networking industry is on the horizon is the fairly recent belief among ISPs that the use of protocol oriented traffic prioritization will not bring the wrath of the FCC down upon them and that such traffic management methodologies will also be acceptable to the majority of the very vocal network neutrality advocacy groups. In this one is simple paragraph we thrown a lot technical terms and details at you, so in an effort to explain what we are really talking about here we will discuss these issue a bit further. Traffic Growth on the Internet Is Staggering First of all, we believe 2009 will be a breakout year for traffic management and deep packet inspection systems simply because the amount of traffic being generated on the Internet continues to grow at a staggering pace. This growth is creating serious problems for ISPs worldwide. The biggest culprit in this growth is clearly video-oriented traffic. As the generations who grew up watching television increase their use of the Internet they increasingly desire video-oriented materials. Advertisers, marketers, and Hollywood are rapidly giving the Internet user exactly what they want. The result has been a tremendous increase in the amount of video-oriented traffic on the Internet. For example, according to the Web management firm comScore Inc., U.S. Internet users viewed to record 14.3 billion videos online during December 2008. This was up an incredible 13% over the previous month - to clarify - we are not talking about 13% year-over-year - we are talking about 13% month over month! YouTube, a site that stores videos, is the single largest bandwidth consumer on the Internet with its traffic up nearly 50% year-over-year. It is estimated that the U.S. portion of the Internet alone will be at least 50 times larger in the year 2015 compared to its size at the end of 2006, with most of this growth coming from video-oriented traffic. A recent report by Nemertes Research estimates that the Internet industry will need to invest some $137 billion over the next few years in order to keep up with these bandwidth demands. According to the report, much of this investment will be to expand bandwidth, but a considerable portion will also be spent on traffic management capabilities. The transmission of video across the Internet consumes a significant amount of bandwidth, often times more than 100 times that used by voice communications or by the ordinary accessing of a website. This tremendous growth in “YouTube” style video viewing is becoming a major problem for Internet service providers, but it is not the biggest video oriented problem facing the industry. A far bigger concern is the mass downloading of large video-oriented files through the use of programs such BitTorrent, which is a free, open source file sharing application used for distributing very large software and media files. When many users on the Internet simultaneously use programs they can potentially consume all of the bandwidth available on certain portions of the Internet preventing other users from accessing resources. Establishing Traffic Management Policies Is Not Simple Just take a look at an example relative to this issue. Let's take the case of a Comcast customer who subscribes to the service provider’s cable modem service. The customer occasionally surfs the web and checks his e-mail, but uses the service for little else. Such a customer consumes very little bandwidth and does so only occasionally. This particular customer, however, has a neighbor across the street who likes to download movies from the Internet and another neighbor next door who does the same thing. The situation can easily arise that when both of these neighbors are downloading movies they would consume all of the available bandwidth on the system, preventing the first customer from accessing even the limited amount of bandwidth needed to check his e-mail. As the popularity of video on the Internet grows, these situations are becoming more commonplace. In such a situation Comcast, or any other ISP, faces a dilemma. Certainly they must provide access to the first customer who simply wants to occasionally check his e-mail or view web pages. Additionally, however, they also have a responsibility to the customers who wishes to download movies. One option is to simply add more bandwidth to the network and this is being done at a rapid pace. The pace at which bandwidth needs are growing, however, is easily outpacing the ISPs’ ability to add bandwidth fast enough. Additionally, such additions of bandwidth are very inexpensive. An alternative for Internet service provider is to deploy some type of traffic management system on the network that will allow all of the users to fairly share the available network resources. This is a function of traffic management systems offered by companies such as Cisco Systems, Procera Networks, Allot Communications, Sandvine Corp. and others. While the deployment of these traffic management systems is clearly a necessity as traffic on the Internet continues to grow, such deployments have been very controversial. The controversy mainly relates in the methodology used to determine how the competing customers can “fairly” share the limited available bandwidth resources. The big problem here is that the ISPs never envisioned that the downloading of video would become such a big problem - the problem simply snuck up on them over the past few years. It's a big problem, however, and one that they are forced to deal with, but making all the parties happy is proving to be elusive. One thing is clear, doing nothing is not an option as bandwidth on the Internet continues to grow at a rapid pace threatening to bring the Internet to its knees. Here's a rundown of the possible options for ISPs in managing this problem. On the surface it may appear to many who are not intimately involved in the networking industry that this problem could easily be solved by simply adding more bandwidth to the network. While to some extent this is true, adding enough bandwidth is an extremely expensive and time-consuming process. An additional issue is that network users have consistently found ways to consume all of the bandwidth that is made available to them. Over the past 50 years the amount of bandwidth on telecommunications networks has increased thousands of times over, yet we are still faced with network capacity constraints. Many who follow the industry believe that even if current amounts of bandwidths were doubled, tripled, or even quadrupled over the next few years, Internet users would still find ways to consume all of this bandwidth. Because of these issues, adding bandwidth to the network will not fix the problem. We believe that most reasonable people who investigate this issue would come to the determination that the easiest way to fix the traffic dilemma is to simply prohibit or restrict the activities of the relatively few number of individuals who are causing the bandwidth bottlenecks on the network. Some executives at the Internet service providers also took the same approach by implementing traffic management solutions that simply disconnected such users during times of peak demand. What seemed like a relatively easy solution created a firestorm of controversy. Unrestricted access to the Internet is considered by many in certain intellectual, government and Internet circles of society as somewhat of a sacred birthright that should be defended vigorously. The issue, often referred to as “Network Neutrality” is the principle that says all information flowing across the Internet should be treated equally. When it was discovered that industry leader Comcast was blocking or disconnecting certain peer-to-peer applications, such as BitTorrent, members of these groups and several members of the media loudly chastised Comcast. Powerful corporations, such as Google, eBay, Intel, and Microsoft, and leading Internet related academics from Harvard, Stanford and Columbia Universities, along with a host of consumer and civil liberty organizations have joined in the debate against Comcast and the other ISPs. The Comcast “Hand Slap” Was a Significant Industry Event In late 2008, the FCC sided with these groups giving Comcast a “slap on the wrist” for blocking certain types of applications in favor of others. Where Comcast ran afoul of the FCC relates to the methodology that was used to manage the huge amounts of traffic on the network. Comcast, which was using relatively unsophisticated traffic management equipment from Canadian-based, Sandvine, Inc., effectively disconnected users who are transferring large files. While the technical details of how this was accomplished are beyond the scope of this report - simply put - when Comcast noticed these large file transfers taking place it injected data streams into the file transfer causing the file transfers to terminate. This clearly violated the premise of “Network Neutrality” and potentially violated long-standing FCC regulations. The FCC's main objection was not that Comcast was managing its traffic, but rather that it was doing so rather arbitrarily and not informing customers of the policies it enacted. In our opinion, this was a valid point because Comcast disconnected even small BitTorrent file transfers even though there was significant bandwidth available on the network. The FCC action and the controversy surrounding it had a negative impact on the deployment of traffic management systems. While it was clear to the ISPs that the methodology invoked by Comcast was unacceptable to the FCC, it was unclear what methodologies would be acceptable. While the legalities and regulations relating to proper Internet traffic management were being sorted out, the ISPs stood on the sidelines relative to the deployment of additional of traffic management systems. This caused revenue reductions at several vendors in this space. The Rules Become Clearer Recently, much has changed relative to this situation. While the FCC has not issued formal guidelines relative to acceptable traffic management practices, somewhat of an understanding between all the parties has evolved over the past few months. Most of the parties now agree that some form of traffic management is needed to prevent the Internet from being completely clogged with no one being able to do anything at all on the Internet. It is now generally believed that traffic management based on time sensitivity of Internet traffic will be acceptable to the FCC. Additionally, it is very clear that the FCC will not tolerate any ISP limiting the delivery of any certain types of traffic. It appears that the delaying certain types of traffic are okay as long as that traffic is able to reach its final destination. Additionally, it also now clear that ISPs need to make the public aware of the general principles of its traffic management policies. Earlier this month, Cox Cable announced a new network management policy that it believes adheres to this philosophy. Cox, the country's third-largest ISP, announced it will divide all traffic into two categories - time sensitive and non-time sensitive. When the network is congested, time sensitive traffic - applications that are naturally intolerant of delay, such as voice calls, gaming, instant messaging and web pages - will travel through the network unimpeded. During times of congestion, low priority traffic - such as file uploads, peer-to-peer applications and video downloads - would be momentarily slowed until the congestion is mitigated. With the increased clarity of what is acceptable and what is not acceptable, the industry is starting to see the logjam in the deployment of traffic management systems that was created by the FCC action against Comcast beginning to clear. During the first half of 2009 we are expecting all of the major Internet service providers to begin deployments of sophisticated traffic management systems to manage the ever-growing amounts of bandwidths being generated by their customers. New Rules Require New Solutions The equipment that will be required to meet the new demands of the ISPs will be significantly more sophisticated than previous generations. In order to meet FCC requirements, increased computing power will be required within the systems as will much more advanced traffic identification technologies. We believe these requirements will force the ISPs to turn toward the newer generations of traffic management devices at the expense of legacy systems that are still being offered by some vendors. While there has been some clarification by the FCC relative what are unacceptable traffic management policies, there have been no clear-cut definitions. An additional factor is that President Obama has recently announced the nomination of a new FCC Chairman, who is a strong supporter of network neutrality. While the ISPs believe the policies under the new FCC regime will change little, there is still some uncertainty. Because of this we believe ISPs will select equipment for traffic management that offers a great deal of flexibility in setting traffic management policies. In our opinion, this is an additional factor that points toward the need for next generation traffic management solutions as they are inherently more flexible than legacy systems. What This Means for Traffic Management Industry 2008 was a year of significant change relative to the issue of traffic management on the Internet. The regulators and the powerful Internet related corporations have clearly won a major battle toward ensuring network neutrality and limiting heavy-handed ISP traffic management policies. As a result, ISPs have refined their traffic management philosophies eliminating policies they were clearly unacceptable and have invoked a new set of parameters that allow them to still provide reasonable Internet access, without completely eliminating access to anyone application or group. In order to invoke these more reasonable policies, ISPs will need to turn toward next generation traffic management solutions that allow them to closely monitor traffic flows through their networks and to quickly identify the different types of traffic being sent by subscribers. Additionally, because the rules are likely to change over time, new traffic management systems must offer the ISP a great deal of flexibility to change policies as these rules are modified or changed. Simply put - relative to traffic management systems it is intelligence and flexibility that will win the day in the competitive battles between the vendors. The Main Industry Players Next, just take a look at the different vendors in the industry and what they are offering relative to these new requirements. There are four major publicly traded vendors competing for business in this space - Cisco Systems (Nasdaq:CSCO) with a total market capitalization of nearly $100 billion, Procera Networks (ASE:PKT) with a total market capitalization of approximately $67 million, Sandvine Corp. (TSX:SVC;AIM:SAND) with a market capitalization of approximately $97 million and Allot Communications (Nasdaq:ALLT) with a market capitalization of approximately $35 million. Cisco Systems and Sandvine have strong incumbent positions at major ISPs and telecommunications carriers that they must defend from Procera Networks, Allot Communications and a host of other vendors that are now moving into this space. We do not consider Cisco's traffic management system to be particularly strong, but due to their overall power in the market, the Company will likely still be successful in competing for market share. Sandvine Corp. Sandvine holds incumbent status at several major U.S. carrier accounts and because of this they are likely to be a tough competitor and difficult to dislodge. For the most recently reported quarter, ending November 30, 2008 Sandvine reported revenues of $18.6 million and an impressive 82% gross margin. Sandvine also continues to have an impressive balance sheet with approximately C$93 million of cash and marketable securities and no long-term debt. The Company's R&D spending is also impressive at approximately C$8 million during the most recently reported quarter. For the last two quarters, however, the company's U.S. sales have been down significantly, a situation we attribute to the stagnation in the market due to the issues we outlined above. During May of 2008 Sandvine announced an important enhancement to its traffic optimization platform called FairShare. This upgrade enables ISPs to better allocate network resources during periods of congestion. While the availability of this product enhancement has enabled Sandvine to keep its current major customers, we do not believe the enhancement matches the capabilities offered by Procera Networks. We believe it is likely that Sandvine's major customers are actively considering other solutions that will offer more accurate traffic identification and increased flexibility in setting up policies for traffic management. Sandvine is clearly the incumbent in this space and any vendor seeking to unseat them will need to have a product that offers significant benefits to the carrier. While we believe Sandvine has some vulnerability relative to some of its major incumbent accounts, we nevertheless believe the company will continue to be successful in this fast growing space. With Sandvine shares trading at just approximately 1.3 times last quarter’s annualized revenues; we do not consider the shares to be particularly expensive. We believe the Company will remain a major player in this market and would consider the shares to be a good buy at current levels considering that it likely that its U.S. sales will accelerate over the next few quarters. Allot Communications Ltd. Allot Communications Ltd. has also seen success in the traffic management market, particularly with international mobile broadband carriers. The Company has recently struggled with growing its quarterly revenues and as result the price of the Company's stock has suffered with the shares currently trading near a 52-week low. The balance sheet remains very sound, however, with approximately $54 million of cash and marketable securities and very little long-term debt. We see Allot continuing to be successful, particularly with the international carriers, but we do not believe its products are strong enough to unseat Sandvine at major U.S.-based ISP accounts. Allot Communications will report its fourth-quarter and full-year 2008 results on February 12, 2008. Allot currently trades at just over one times the last quarter revenues annualized. We would certainly want to see revenue growth at the Company resume before considering the shares for purchase. Procera Networks We believe Procera Networks has the best overall traffic management platform on the market today. However, Procera is fighting against a strong incumbent vendor (Sandvine) at several major accounts. It is usually difficult for many small-cap investors to understand the dynamics of unseating an incumbent vendor at an ISP or telecommunications carrier. It is extremely difficult. The relationship between any equipment or software vendor and the ISP staff matures over a significant period of time. The ISPs come to depend heavily on their incumbent vendors for operational and technical support. Even if a new vendor presents a solution that is vastly superior to that offered by the incumbent vendor it often not enough to invoke a change of vendors. It is typically only over an extended period of time that the carrier will consider adding a new vendor to the mix. Often times, the incumbent vendor's products will still remain an important part of the ISP’s operation for many years even after a new vendor is selected. Due to these dynamics we believe that Sandvine will have a strong position at most of the major US-based ISPs for an extended period of time. We believe a likely scenario over the coming few quarters is that Procera will begin to also be installed at these carriers. We view Procera's platform as being superior to all others mainly due to its highly accurate traffic identification capabilities. Based in our discussions with industry personnel, head-to-head tests between Procera's product and others on the market have clearly demonstrated Procera's superior abilities in this area. As ISPs migrate toward traffic based prioritization, such capabilities will be increasingly important. We also believe Procera's product excels in the area of policy setting, storage of traffic management information, and particularly in its ability to link this traffic management information to the ISP’s operational support systems. We continue to be excited about the introduction of the Company’s multi-gigabit product, called the PL10000. There is a race on among competitors in this subsector of the networking industry for the development and fielding of a multi-gigabit platform that can serve the needs of the largest Internet service and networking providers. Because of the very flexible underlying architecture on which Procera's technology is based, DRDL, it is our opinion that Procera is in a strong leadership position for the delivery of such a product to an industry that is actively seeking solutions to its growing bandwidth related problems. Based on the approximately 79 million fully diluted shares, which were outstanding as of the end of the last reported quarter, Procera's total market capitalization at time of publication is approximately $63 million (at $0.80 a per share), which is approximately 1.6X our current $40 million estimate for calendar 2009. Summary In summary, we believe Procera Networks will see significant growth over the next few quarters and we see the Company likely turning profitable during either the first or second quarter of 2009. While we think Procera has the strongest stock appreciation potential because of the dramatic revenue growth expected over the coming quarters, we also believe Sandvine is also likely to do well during 2009. We do not expect Procera to unseat Sandvine as the main incumbent vendor during 2009, but we do believe Procera will likely take some market share during the year. We would be cautious relative to owning shares of Allot Communications as we believe it will be difficult for the Company to show substantial top line revenue growth over the coming quarters. All three of these companies, however, have strong potentials for producing very high gross margins - all likely well in excess of 80% - and all have strong balance sheets with very little to no debt. It is clear to us that the logjam in traffic management deployments created by ill-defined FCC guidelines and regulations is clearing. We are predicting 2009 to be a banner year for the traffic management subsector of the networking industry. The amount of video oriented traffic on the Internet continues to grow at a rapid pace and this will force all Internet service providers to increase the amount of available bandwidth on their network and to implement sound of traffic management policies in order to prevent catastrophic failure of their networks. This is a very real concern for the industry and solutions must be immediately implemented. We believe the four companies profiled in this report will all likely realize strong revenue as a result.