Ed:
Excellent summary of today's cc. The question mark you had after 8% is atm work group products category.
Now here are my impressions about today's earnings and cc:
I was disappointed with the earnings but the earnings are not as disappointing and the outlook looks very good going forward and the stock price should not only hold but move up with time starting 4/24!
Let's look at the part that I didn't like first:
-The reason we have 13c is because of two things-lower taxes from the last three quarters and the current quarter and secondly sequential decline (in absolute and %ge of Rev terms) in R&D expense. If the company's tax rate would have been the same (ie 34%) eps would be 10.9c, with 30% tax rate applied just to this Q it would be 11.6c and with retroactive application of 30% for all 4Q's it is 12.9c as reported.
-Secondly, 58% of the Revs were booked in March which resulted in a very high DSOs (76.4). Lot of the company's working capital is getting tied up in Receivables and Inventory. I do understand, Jan is usually slow and Feb is shorter but with the new MRP system well in place, they definitely need to have shipments more linear and churn the Inventory more frequently.
-Finally, the ATM port shipments was disappointing-45K (last Q) vs. 47K this Q. The higher Revs came mainly from product mix (higher priced OC-12 modules this Q vs lower priced OC-3 modules last Q). Port shipments should improve faster than this!
Let's look at things that I liked and why future looks good:
-Whatever may be the reason for lower tax rates (I understand, it is because of the Ireland plant, but that's not new this Q. Wonder why it took them so long to figure out that the previous years tax rate of 38% should be 30% and not 34% that they have been guiding us for last 4 Q's!) will help the bottom line grow faster! Analysts will start revising the estimates by at least 4c just because of this matter alone i.e. 60c vs 56c. Here's how you get this number(assuming 56c estimate for next year, which I think is modest to begin with and hence easy to meet)- .56*.70/.66=.60c
-Next quarter looks like a done deal- record bookings and good visibility and a few big jobs in the works! The 40Gbps will not ship till Aug!! If they can grow revs without this product, that's really great!
-We haven't seen anything yet from the DT deal. They are system integrators and being the 3rd largest telecom vendor, it's not their while to work on tiny projects plus they will deploy Fore's products internally too! Seems like growth should be good going forward with good chance of over 10% coming quarter.
-Strong productline coming-up. By the time, revs start kicking-up from the 40G, they will have 40G+ enhanced features for the Carrier markets and MSC-700 will start a new rev stream! I think, the press is already talking about their 40G scalable to 120G! They will remain ahead of the competition! And there are some other products in the works that Tom didn't want to talk about at the present time!
-The earnings report seem to indicate that their big customers see the advantage of ATM not just in the backbone but also at the edge! This could really make this company explode (if enterprise customers start deploying ATM just like they are doing Ethernet). Tom talked about this in the cc too. Fore is the only vendor who can provide a complete end-to-end ATM solution! There were 18K NICs this Q vs. 15K last Q!
-I think, Institutions have loaded-up on the stock and analysts upgrades are on the way!
-Finally, Tom with his accounting background knows how to play with operating expenses. Between S&M and R&D he's has enough cushion of about 3-4c (after taxes) if the Q is weak! During calendar 96, OE were 39-41% of Rev now it is 45% of Rev and he can always leverage S&M and R&D expenses during weak Q's. I suspect, there is room in G&A too, because his guidance is 4.5-5.5% which is much higher compared to other co's in similar business (XYLN, YURI, PRMS, etc.) vs. 5.1% of Rev at the present time!
Looking good and I think, the worst is behind us now!
Pam |
