DMC Stratex Networks Q2 FY01 Conference Call - Part IV, Q&A Session
Tuesday 17 October 2000
1. ??? Basu?, Morgan Stanley Dean Witter
A) Please repeat revenues & orders by geography & product family.
==> Numbers were repeated.
B) To get a sense of where ,margins are heading, what percentage
of orders were for Spectrum II (a relatively low-margin product)?
==> We had strong Q2 bookings for Spectrum II, but part of these were
shipped during Q2 because the customers wanted a quick turnaround
which we could do with Spectrum II. As mentioned, we’re expecting a
small improvement in margins in Q3 and another improvement in Q4...
that expectation is based upon both expected product mix and upon
expected factory costs.
C) (Some confused/confusing question pertaining to long-distance products.)
==> STXN’s DXR product offers transmission over long-distances.
D) Number of active transceiver suppliers?
==> About 7 currently, plus 1 or 2 are “in progress” at this point.
2. Blaine Carroll
Congratulations on a nice quarter.
A) Clarify the numbers on Altium & Broadband
==> Numbers were clarified.
B) Breakdown of revenue by market? and trend over time?
==> 50% mobile, 40% Fixed Wireless, 10% Private Networks.
This is a pretty stable mix for awhile. Fixed Wireless will get
larger over time but we’ll also see another big surge in cellular
about 9-12 months from now.
C) Competitive pricing trends for broadband/Altium products?
==> Broadband pricing is stabilized. In Europe, Austria & Germany
are now requiring the 28 MHz bandwidth for high-capacity OC-3 radios...
in France its not legislated, but it is preferred, and we just won a
new piece of business there. So our strategy of going for spectral
efficiency is paying off. [Remark: I think STXN is the only company
offering OC-3 capacity in 28 MHz of bandwidth.]
D) Were gross margins negatively impacted by Spectrum II (i.e., product mix)?
==> Yes. Both extra Spectrum II shipments and increased factory costs as
we focussed on getting product out.. causing us to pay premium prices for
parts. We also increased our service capability and added some fixed costs
there... all of which negatively impacted our margins this quarter.
Thanks. Again, great quarter.
3. Dale Pfau, CIBC World Markets
Congratulations gentlemen. Fantastic recovery in this quarter
A) Please review the product roadmap for millenium.
==> 311 Mbps product roll-out by end of March 2001 and the
622 Mbps product roll-out 1 or 2 quarters after that.
B) What bandwidth is needed for the 622 Mbps product?
==> The first version will use 112 MHz of bandwidth. [Remark:
this is the same spectral efficiency (measured in bits/sec/Hz)
as the Altium product.]
C) Where are high-capacity networks headed in terms of P-P and
P-MP versus full mesh interconnects?
==> As I mentioned, there are many different configurations that
we’re now delivering in addition to straight single P-P including
multiple P-P and multiple multiple P-P hubs in a mesh environment;
where we have spokes of radios going to one location and then to
another location... it looks like a complete radio network. We have
actually started to implement some of those; we don’t call them mesh
networks, but that’s what they are. Its an alternative that distributes
the capacity throughout a geographic area, where a tremendous amount of
capacity is needed, and I do expect this trend to increase. The key
driver here is that the average capacity required by an office building
is continuing to go up and its moving outside the range where a shared
spectrum approach (aka a multipoint configuration) will be able to
serve it. We do think there will be a market for multipoint applications,
but it won’t be as big as some people hoped because of these capacity
requirements. P-P, Star networks, Mesh networks, and shared rings are
becoming increasingly popular.. in fact, here we are if you look at
our numbers.
D) What capacities are network operators talking about needing for the
interconnect radios to support the new 3G networks?
==> What we’re seeing in our planning is that 34 Mbps will be okay
in the early stages but in the 2nd or 3rd year out there will be a
conversion to higher levels up to 155 Mbps. The other important part
is that there is a movement to more of a packet-backhaul rather than
voice-type circuits and this fits well with the way our radios are
designed right now. I think you’ll see our Millenium products not
only increase the capacity but they also bring the cost down (per
megabit) and the size of the product also will reduce over time...
that makes it a much better fit for the 3G environment.
4. Mike Brown, Dain Rauscher Wessels
Great quarter guys.
A) Were Altium revenues down slightly sequentially?
==> Yes.
B) Is there anything we should read into that?
==> No. Orders and backlog for Altium were up sequentially.
We’re shipping based on customer-required deliver dates and, as
we’ve said, orders and shipments can be lumpy from time to time
depending on customer build-out schedules, etc.
C) Lead times for Altium?
==> Lead times are as good as they’ve been.
D) Will the fact that 3G mobile networks increase the capacity out to
the handset create an opportunity for STXN to increase its OEM
relationships (given that captive radio suppliers are not keeping
up with STXN in the design/manufacture of these advanced radios)?
==> Yes, it does open up an opportunity... and I think we’re starting
to see it already. But I don’t see this as a big step-function, its
just a natural transition. This plays into the OEM development program;
as they go into 3G development and they need to allocate development
dollars... they see that they have a good reliable partner in STXN for
the network interconnect and they will naturally allocate fewer dollars
to product development in this area.
5. Craig Walters, Ferris Baker Watts
Congratulations on a great quarter guys.
A) How is the mix of orders for Altium and XP4 changing for CLEC and
traditional buyers?
==> Geographically there are more and more opportunities for fixed
wireless applications. Up until recently, fixed wireless has been
primarily a U.S. and European phenomenon but now we’re starting
to see increased interest in this from Latin America and China.
B) What what finished good inventory as a percentage of all inventory?
==> Q2: 23%. Q3: Lower, about 15-20% range. We need to be careful
about this because we need to include as finished goods any products
that are shippable as spare parts even though we often don’t intend
to ship them that way.
C) What was your operating cash flow for the quarter?
==> We started the quarter with $98 million in cash and ended
wit $83 million in cash... we used about $15 million for
inventory and receivable increases.
6. ??, Tudor Investments?
Great quarter guys.
A) Are there any customers over 10% in revenue?
==> Yes. Winstar is over 10% in the present quarter. Its not
clear whether we’ll have an 10% customers for the full year.
Last year we had Beijing Telecom as a 10% customer.
B) Are there any customers over 10% in new orders?
==> Its about the same folks. China was the only customer over
10% in new orders this quarter.
C) Can you break-out the $57.3 million in revenue for the Americas
in terms of U.S., Mexico, and other?
==> North America: $35.9 million. South America: $21.4 million.
D) Are you in compliance with SAV101?
==> Yes. We’ve always been compliant with SAV101.
7. Kevin ??, First Security Van Kasper
Good job on the quarter gentlemen.
A) Could you tell us more about your relationship with your
transceiver suppliers? Can you tell us about the component
issues that they’re seeing and the assurances they’re giving you?
==> In general, there has been a return to sanity in terms of
some of the verheated areas. We have excellent relationships with
our transceiver suppliers at all levels of management. Right now,
we don’t see anything abnormal or unusual in the supply chain.
B) You talked about adding 1 or 2 more transceiver suppliers. When
do you think that will happen, where are they geographically, and
what kind of safety margin will that give you?
==> Adding more transceiver suppliers is more of a normal business
activity at this point in time. We’re not counting on that to make
the difference in our planning. In some cases we’re looking at new
technologies and some cost-effective changes... its more a matter
of managing and working with our existing supply-chain partners.
We’ve got millenium coming out so we’ll be doing some new things
there... so there’s room for a couple more good players for us to
partner up with.
C) Please go through the change in receivables and how you managed
DSO down and where you expect that to go?
==> The movement from 122 to 108 days was basically a blocking and
tackling effort in terms of collection. Going forward I expect DSO’s
to be certainly under 105 days and perhaps under 100 days by the end
of Q3.
D) What was the turn number?
==> 3.7
8. Brian Modoff, Deutsch Bank Alex Brown
A) What’s driving the strong orders from the Asia/Pacific region as
well as those in the longhaul area? What’s the outlook for Altium?
==> China business continues to be solid. Network expansions in Taiwan.
Stength has been all across the board... India, Sri Lanka, Phillipines,
Indonesia, Malaysia, Pakistan and Australia. Altium backlog is strong
and prospects are looking good for this quarter. Longhaul - the DXR700
is picking up momentum... good orders are coming from Mexico and parts
of South America... and some U.S. orders have come in for private networks.
B) What about the transceiver issue?
==> Right now its an on-going take-care-of-business mode as opposed
to what we went through to get the issue stabilized. I don’t want to
say that its business as usual but its not in any sense anything that
we’re wringing our hands over.
C) In the previous quarterly conference call you indicated you were actually
turning away orders for XP4 because lead times were getting so long. Are
those orders still out thre and are you now getting shorter lead times?
==> Customer retention has been an important issue for us going through
this transition period and we’ve been doing pretty well. XP4 continues
to ramp up but the backlog is still strong. We’re pulling some dates in
but the lead times aren’t as short as we’d like them to be... we want to
get to the 30-45 day turnaround time but we’re not back to that level yet.
So we’re still working through the XP4 ramp-up and the customer satisfaction
issues.
9. ??? Basu?, Morgan Stanley Dean Witter
A) What percentage of revenue comes from OEM’s? What percent of revenue
for the quarter was received in each month?
==> About 50% of the quarterly revenue was received in the 3rd month
and about 20-30% was received in each of the first two months.
OEM’s accounted for about 30% of the revenue which is pretty
consistent with previous quarters.
[End of call. Total time: 1 hour 15 minutes.] |
