Cristopher,
1. The latest numbers on revenue and income percentages that I
have seen appeared in the 11-95 Individual Investor article.
According to this source, service revenues were 10% of the total
in FY 94, and 20 % in FY 95, along with 80% of total profits.
Over time you can expect the percentage of service revenues to
continue to increase. Service earnings should be far more stable
and predictable than hardware earnings which should result in
multiple expansion along with increased earnings. When FY 96
results are out in a few weeks it would be interesting to check
with the company on the percentages for the year. That’s probably
also the best way to get an answer on the margin questions you raise.
2. There may have been some seasonality to TRNT’s results in the
past related to hardware purchases tending to be made at certain
times of the year. Again, this would diminish as service revenues
increase over time. My view is that much of the past variation in
the company’s results is due to fluctuations in demand and price
for hardware. When demand was high, so were revenues and margins;
I think this explains the results in Q4 last year, and also much
of the decline in revenues in Q3 this year. Given the current
situation with relatively weak demand for hardware and low margins,
I think its safe to assume that EPS in Q4 96 will be below Q4 95.
However, I believe the figure of $0.07 for Q4 95 can be exceeded
during FY 97 as service revenues increase and hardware margins
return to normal. The leasing by TRNT of the property they own
is also a plus.
In summary, it is the future growth in demand for networking
services and support that makes TRNT attractive. By also
offering hardware TRNT can offer the customer one stop shopping
which I think is a long term plus, even though hardware has not
been the business to be in this year. |
