Here are a few random notes from the earnings conference call last week:
Gross Margin
GM was 29.3% last quarter and its still growing. They expect this to be in the 29-31% range this quarter. Their business plan targets this to reach 35-40% eventually but some analysts seemed to think this target is too low. The reason this target may be too low is due to software licensing sales through Alcatel (and others that STXN will license); these sales will bring in less revenue, but nearly 100% GM, and so should lift the overall blended GM at STXN. That is, STXN will record the same earnings (but less revenue) on every Eclipse node sold by Alcatel that STXN would have received by selling that node itself. My guess is that Kissner is unable to make accurate predictions, at this time, of what sales volume Alcatel will achieve so he's just tending to view the Alcatel sales as "gravy" which will provide some "insurance" t help them make their predicted numbers. Over time, as a track record is established, Eclipse sales by Alcatel (and others) will become more predictable and STXN will include them in their forecasts.
New Orders
This was the big news. STXN received an astounding $84.8M in new orders during the quarter. $64.7M of these orders were for Eclipse (vs only $32M in the prior quarter), $9.3M of these orders were for services, $7.3M of these orders were for mid-range products like Velox and XP4. Moreover, these orders has a broad geographic distribution: $35M for the mid-east and Africa, $26.5M for Asia-Pacific, $15.5M for Europe, and $7.8M for the Americas. But note that orders are "lumpy" so we should not necessarily expect a similarly large increase in orders next quarter; my guess is that we'll see another $80-90m in orders this quarter. Its notable that Altium orders were down to only $1.7M during the quarter because a big customer is in the process of switching to Eclipse, but that customer has not yet placed any orders for Eclipse.
Forecast
This quarter should see $61-64M in revenue and $0.02 to $0.03 in EPS.
New Products
Unlike the current Eclipse products, the recently announced next-generation Eclipse (E300HP) uses far fewer parts, requires 80% less assembly time, can be built by standard contract manufacturers, and costs them 40-50% less while offering no less capability. This will give them faster time-to-market and it will make it easy for them to ramp up volume production (which further lowers costs). Importantly, as competition heats up and selling prices come under pressure, their lower costs mean they can maintain a highly profitable GM. These new products will open up new markets, have a higher fraction of their value in software (and IP), and generally raise the competitive bar.
Future
The same STXN-developed (and owned) technology used in these new products will also be used in future products but such new products will include other innovations as well. They have "several innovations in the works right now" and their plan is to "flood the market with innovation". New product introductions should accelerate during the next year.
Finally, I'll note that all the analysts on this earnings conference call were offering their hearty congratulations on an excellent quarter. They were universally bullish and its been a very long time since I heard such feedback.
Rob |
