Allot Communications, which supplies technology that allows telecom operators to monitor and allocate bandwidth, posted a forecast-beating rise in quarterly profit as revenues rose more than 40%, helped by surging demand for fast Internet on mobile devices.

The company also announced it was purchasing an Israeli start-up.

But the initial positive reaction that sent Allot's Tel Aviv shares 2.7% higher by the close was tempered by concern over deal flow and the company's simultaneous announcement of its second acquisition in four months.

Allot's Nasdaq-listed shares slid 7% to $22.96 in early trading after CEO Rami Hadar said in a conference call that while deal flow was healthy, the deal-closing process is taking longer because of pricing issues in a challenging economic environment.

"They had a great quarter," said Northland Capital Markets analyst Catharine Trebnick, who rates Allot as "market perform" with a $28 target. "But investors are confused."

She cited worries over longer contract negotiations as well as Allot's announcement that it plans to buy Israeli start-up Oversi Networks for $16 million in cash.

Traditional telcoms and mobile operators are experiencing high demand for bandwidth because of strong sales of iPhones, iPads and Android-based mobile phones and devices, but providers are seeing revenue declining as unlimited data plans have grown more popular.

"Allot is benefiting from growth in mobile data and growth in data traffic in general," Nachum Falek, Allot's chief financial officer, told Reuters yesterday.

Video, Falek said, is likely to account for 60% to 70% of traffic in the next few years, up from a current 42%.

The company's planned purchase of Oversi, a provider of media caching for Internet video, follows its acquisition of Ortiva Wireless in May and is expected to close in the third quarter.

In addition to cash, Allot will pay up to $5 million based on Oversi's performance in 2012. Oversi is expected to contribute $2 million to Allot's quarterly revenue and reduce earnings per share by two cents in the fourth quarter before breaking even by the first quarter of 2013.