Conference call, Analyst Q&A:
Q: Revenue
A: 3-5% up in Q3 (with an extra week). 3-5% up guidance for Q4
Q: Momentum in the SP high-end router market.
A: SP up 6-8% sequentially. High-end router up ~10%. Getting stronger in SP. JC sounded very confident.
Q: Operating expenses up sequentially (with an extra week)
A: Will be active in college recruiting. Investments that will pay off 3-4 years from now. Over-aggressive sales goals. Continuing impact from Forex swings..
Q: Pricing pressures mentioned by competitors:
A: Gross margins up 0.3% to 68.8%. One router competitor was very aggressive with discounts
Q: Inventory, problems with suppliers
A: Intense effort to bring lead-times down. Supply issues with ASICs, PLD's, flash. Pricing pressures in Memory (DRAM, SRAM), PCB (commodity prices increasing). 0.5% impact on growth margins
Q: Advanced technologies, new worlds left to conquer
A: JC would like a list of at least 12 (up from 6 now). Prioritizing new opportunities.
Applications, XML, RFID, Wi-MAX
Q: Gov business: Sales, orders
A: Enterprise, through Direct sales. Distinction of Commercial (through channels). Fed gov up 20%. Public sector, including Healthcare has lots of potential, especially in Europe.
Q: Low-end of the market, worldwide
A: Normal seasonality weakness in China. Linksys, expanded, worldwide
Q: Switching
A: All categories did well. Majority is Enterprise (high-end). Good balance across the board.
Q: On the minds of CIO's in Europe
A: SP's ahead of the U.S., in terms of revenue generation and creating new services. Other markets similar to the U.S.
Q: Increase of gross margins
A: Price/performance of Sup 720 on the Cat 6K. Significant value for the customer!
Q: Future of switching markets
A: Systems decision as opposed to boxes. Network architecture. Increasingly integrated functionality: Security, IP telephony
Q: Seasonality: Countries (Japan) & Advanced tech (Security, IP telephony, Wireless)
A: Prediction by country or geography. Advanced technology adoption by Asia stronger
Q: Ericsson joint venture customers (two in Europe)
A: PSTN modernization, Broadband access. SP sales cycles are long. Ericsson brings complementary value. Global relationship.
Q: Bookings growth in the teens
A: JC says growth is based on worldwide GDP growth.
Q: Competitive landscape, consolidation
A: Competitors evolving from pin-point products. JC predicts consolidation. Rising tide will not lead everyone up. Systems vs boxes. Architecture vs products. Security/IP telephony differentiator. 3-5 year lead as a solutions provider.
Q: IP telephony as a percentage of LAN switch ports
A: 30%
Q: Verticals
A: Strong: Retail, Financial services, high-tech (?) strongest, Healthcare (long haul, huge opportunity). Lagging: Manufacturing (in the U.S.)
Q: Potential acquisitions:
A: Video (gaming, video on demand, software, cameras)
Q: Provision for doubtful accounts, deferred revenue
A: No obvious concerns
Q: New (proposed) accounting standards for options: any changes
A: No change in stance. Maintain innovation in the USA. Searching for a reasonable compromise. Black-Scholes overstates estimates. Economic, job creation. Competitor market caps have shrunk 63%
Q: Increased Capital Spending:
A: 70-90% customers increasing budgets. (Priority order) Security, Wireless, IP telephony. Also network architecture.
Q: Security products
A: Pricing strong (no reason to discount). Security architecture. Admission control.
Closing: JC: Emphasis on network architecture, as compared to point products.
Overall tone was very upbeat! |
