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Technology Stocks : NENG: Network Engines, Inc.
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To: D. K. G. who wrote (85)12/10/2003 11:43:36 PM
From: Gus  Read Replies (1) of 186
 
NENG reiterated its guidance ($30M-$34M in sales etc) for the December 2003 quarter but, as you know, has not provided guidance for the March 2004 quarter, Denis. The gratuitous and ill-timed contract amendment affecting the gross margins of the EMC/HBA business (less than 15% of sales) doesn't kick in until the start of the June 2004 quarter so NENG has some time to show that its appliance business, which has always had higher margins than the Tidalwire distribution business, will more than make up for the decline in EMC/HBA gross margins.

It remains to be seen if the decline in NENG's EMC/HBA margins will translate to lower HBA prices which, in turn, should increase HBA sales or if EMC is just going to pocket the small change, chump change really if you consider the way that NENG provides for many early Centera adopters to invest in this genuinely innovative object-based platform from EMC. By the way, Centera recently reached the 10PB+ and 300+ customer milestones. It appears to be on track to continue to meet or exceed internal forecasts at NENG and EMC even from the new consignment baseline established last quarter.

$5M/quarter in OTHER server appliance revenue ($1.9M last quarter) appears to be the most achievable milestone for NENG in the next two quarters and then $10M/quarter will become more visible after that. We'll see. I also think that NENG has to speed up its acquisition strategy during what is still a small cap-led stock market to lessen its dependence on EMC.
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