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Technology Stocks : Stratex Networks, Inc. (STXN)

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To: akmike who wrote (1590)	10/25/2004 6:30:16 PM
From: Rob Preuss	of 1762

Conference Call Notes Q2 Financial Data Revenue Orders Americas: 10.1 M 8.8M Europe: 29.6M 28.5M Asia: 3.9M 8.6M ====================================== Total: 46.3M 45.9M Eclipse: 8.1M 12.3M XP4: 14.5M 17.0M Altium: 8.4M 5.2M DXR: 5.2M 5.0M Services: 7.4M 6.0M ====================================== Total: 46.3M 45.9M Gross Margins 19.3% Very large increase in GM from previous quarter is due mostly to ramp of Eclipse and to Services. Legacy products are under strong price pressure and sales of these products are dropping off more quickly than anticipated earlier. Eclipse orders increased 100% from the previous quarter while orders for legacy products dropped off 17% from the previous quarter. The drop in orders for legacy products is expected to continue to drop off in future quarters. Eclipse is growing rapidly and the company continues to have strong confidence in this product line. Eclipse is more robust than earlier products and installation is faster/easier; it achieves triple the MTBF vs previous products and manufacturing yields are improving such that they expect to have no problem meeting the growth in demand expected for Q3. Key features of Eclipse that contribute to its value to customers are: (1) Network Nodal Capability, (2) SW based scalability, (3) HW Modularity, (4) Routing and Cross-Connect, and (5) Liquid Bandwidth Ethernet. Q3 Forecast: Revenue $45M to $48M with $0.06 to $0.08 loss per share. Break even predictions for end of Q4 were predicated on achieving $50M to $55M in quarterly revenue with GM around 28-29%. The GM target still seems on track but they are having difficulty reaching the revenue target (due to more rapid drop off in legacy product sales); they are looking at additional possibilities for cost savings to help them meet the Q4 break even target at lower revenues. Most Eclipse customers to date have been new customers for STXN. In Q3 and Q4 they will start to ship more Eclipse product to traditional STXN customers. The Quattro offering is expected to contribute to revenue significantly in CY06. A new Eclipse product, to address the access market, is expected to ship to customers in Q4. We may see some press on this late in Q3 (no promises). The access market is huge and growing, so this is an important new product. It offers lower speeds than the current Eclipse at lower costs, but it is based on the same SW as the current Eclipse and it shares much of the same HW elements as the current Eclipse. It will initially be offered in only 2-3 frequency bands, but the number of frequency bands offered will increase rapidly because of the similar HW it uses. It will also be SW upgradable to higher speeds, but it will not reach the highest speeds that the current Eclipse offers. Eclipse is expected to reach 40% of sales revenue in Q4FY05 and 70% of sales revenue by the end of FY06. STXN share count in Q3 will be about 93.5M.

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