Here is Goldman Sachs's Comment- (I'll post other comments tomorrow.)
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02:34pm EST 3-Apr-97 Goldman Sachs (HENRY) PCTL VSVR
PCTL,VSVR : March qtr. shortfall at PCTL, reducing PCTL ests.
GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS GS
Goldman, Sachs & Co. Investment Research
PictureTel Corp., VideoServer, Inc.
* * March qtr. shortfall at PCTL, reducing PCTL ests. * *
Mary Henry (212) 902-6787 - NY Equity Research
===================== NOTE 2:30 PM April 03, 1997 ===============
Stk Latest 52 Week Mkt Cap YTD Pr Cur
Rtg Close Range (mm $) Change Yield
--- ------ ------- ------- ------ -----
PictureTel Corp. RL 11.00 42-10 366.9 -58% 0.0%
--------------Earnings Per Share---------------
PCTL Mar Jun Sep Dec FY CY
1998 FY
1997 FY 0.13 0.21 0.23 0.32 0.90
1996 FY(A) 0.21 0.24 0.25 0.28 0.96
-Abs P/E on- -Rel P/E on-- P/NxtFY LT EPS
Cur Nxt Cur Nxt EBITDA Growth
----- ----- ----- ----- -------- ------
PCTL FY 12.2X NM X NM X NM X NA X 30%
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* PictureTel preannounced a March quarter shortfall. Revenues are
expected to be about $120 million, compared to our published
forecast of $135 million. The March quarter revenues were up 14%
year-over-year, but down from $140 million in the December quarter.
While no details are available on earnings, we expect the Street range
to be about $0.12-$0.13, versus current Street estimates of
$0.18-$0.20 for the quarter.
* We are reducing our rounded 1997 full year estimate to $0.90 from
$1.20 to reflect the shortfall. This is based on preliminary
information and this forecast may prove to be too conservative. The
company will provide more details on April 16 when it releases its
final March quarter results.
* Management cited that the United States was apparently the weakest
region and that desktop business fell sequentially. International
revenues were reported to be strong. Swiftsite grew sequentially
and appears to be cannibalizing low-end room systems and high-end
desktop systems. While unit sales remained strong, average selling
prices declined, driving the shortfall. Gross margin, however, was
apparently up sequentially. The balance sheet, which had been a
strength of this company, deteriorated in the quarter and will
obviously need to be addressed soon. Cash apparently fell about $15
mm to $85 mm, although this still represents a cash position of at
least $2.40 per share. Days sales outstanding probably rose in the
quarter. On the positive side, expense control appears to have
been excellent during this troubled quarter.
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PictureTel's stock has been drifting down for weeks on reports of a
difficult March quarter, so today's news of a shortfall is not very
surprising. It is important to view PictureTel's current results in the context of a management transition that is occurring at the company. In January, PictureTel named the new Chief Operating Officer at the same time the head of sales left the company. Further management change is probably underway. While we recognize the videoconferencing industry is also experiencing a transition to lower-priced products, more networking products, and more LAN-related products, we think more of PictureTel's current difficulties stem from the organizational changes. Fortunately, Picturetel's chief competitors, VTEL and Compression Labs, are facing similar difficulties as they consolidate, and PictureTel's product line is
already competitive for the new market environment.
In February, PictureTel's management told investors that the desktop
business would undergo some transition this year as customers slow their purchases of dial-up desktop videoconferencing systems in anticipation of IP-based LAN videoconferencing systems becoming available later in the year. PictureTel has been developing IP-based systems and currently ships a LAN-based product and is expected to have product introduction in this area all year. Many industry observers expect LAN-based videoconferencing to create accelerated market growth in 1998, similar to industry experience a couple of years ago. In 1993, for example, when desktop products were first presented, PictureTel's revenue growth slowed to about 25%, then
accelerated in 1994 to 45% as customers began to purchase desktop systems.
Further details will be available on April 16 when the company announces its final results. While the management transition should continue to have some effect for at least another quarter or two, the company's near term focus on its range of strategic options will likely be good for the company longer term and continue to have some effect on operating results for the next quarter or two.
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