Notes from the CC:
Sounds like business has picked up quite a bit faster than management led us to believe after last CC
Business for the month of July was very strong, giving the company more confidence than usual for the weakest quarter of the year (August is very slow do to seasonality vacations in various parts of the world).
Completed first sales of 3G to Nortel, Motorola and a few others in the quarter.
Sounds like the customer base is diversifying with business to Japanese customers coming in near 40%+, followed by North America and Europe. Dr. Karp made it sound like this is the first quarter that Cisco made a significant impact on earnings/revenue.
3G sales large in both Europe and Japan (NTT, Fujitsu and Nokia), while VOIP stronger in North America (presumably strong sales to Cisco).
Going forward, this quarter will be very dependant on finishing some engineering on some 3G protocols, which should be completed shortly. Company gave conservative revenue guidance this quarter due to the "remote possibility" that the protocols may not be completed in time, preventing the recognition of revenue in this quarter. However, the company stressed that they have never been late with any releases.
Dr. Karp stated that business is the strongest he has seen in 15 years. It sounded like the 4th quarter should be very strong (easily beat both revenue and earning estimates), with Q1 and Q2 of 2001 being very strong, with Q2 the strongest - presumably due to the end of the fiscal year in Japan, and some large orders from NTT (just a presumption on my part).
Karp also mentioned that he is hearing rumblings from Japanese customers of NTT, that NTT DoCoMo is requiring them to use Catapult test systems.
Also briefly talked about the new CFO, and the auction of the 3G license in Australia (stated that this may have a material impact on revenues, but would not be until next year, as it will take time to transfer ownership of the licenses - to be auctioned in September).
One last comment of note: CIBC analyst asked about earnings guidance going out a few quarters (management stated that as a % of revenue, earnings may drop due to increase in expected staffing and filling out of the management team), and Karp dismissed the analysts understanding of prior comments. He reiterated that business is the strongest it has been in 15 years, and the lower % is related to increased expenses due to expected hirings and G&A expenses. Furthermore, Karp stated that the only issue holding back revenue at this point is problems getting the engineering staff up to desired levels.
In summary, this is by far the most bullish Karp has been in the several CC's I have listened to. The focus of CATT next year will again be on revenue growth (this year was more focused on the VoIP and 3G markets, filling out the management team, etc.). I fully expect to see some stellar results in the next few quarters. While the potential for another problem like last year will always exist (reduced sales to NTT DoCoMo), with the increased customer diversification, I see that less of an overhang on the stock. I fully expect us to see new all-time highs over the next year - whether the market cooperates or not. This company has a terrific balance sheet, a fantastic customer list, and the opportunity to see extremely rapid growth in business. I think that the best is yet to come.
Keith |
