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Technology Stocks : Aviat Networks

AVNW 23.29

-3.6%

3:59 PM EST

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To: The Ox who wrote (153)	4/29/2008 6:59:01 PM
From: Rob Preuss	Read Replies (1) of 312

The call was interesting. They mentioned that they have solidly captured $19 million of the $35 million in anticipated merger synergies but are still working to capture the remaining elusive $16 million. Reducing costs and improving margins are among the key areas that Braun is focussed on. He has launched an internal "project" to identify and capture cost reductions as swiftly as possible... and he meets weekly with his project lead on this. Braun says 28% of their sales is now in IP and he sees that growing to as much as 70% in two years. He says that IP commands a margin as much as 15 percentage points higher than older TDM. Braun mentioned that overall industry growth is only 6-8% per year but growth in the high-capacity products (where HSTX excels) is more like 20%. They said that product price erosion is generally around 10-12% per year... although it varies by product and by region. They said they're working on some big IP deal in Australia. Its close to completion but that's all they would say. Sounded big enough they we might look for a press release when the ink dries. Braun said he sees big opportunities in the services area. He said this at least twice. I think he'll be pushing this. While guidance of revenue is toward the high end of previous projections, guidance on earnings is toward the low end of previous projections. Worse still is that this earnings guidance does NOT take into account the costs of replacing Cambell with Braun... so we can really expect earnings to come in BELOW the low end of guidance this next quarter. My take is that revenue growth is essential but its not enough. They really have to improve margins and this will come from two areas: reducing costs and innovation... the latter because unique/innovative products (and services) enable them to command a price premium and to resist price erosion. Braun seems to understand this... he's only been on the job for 20 days... time will tell if he's able to deliver.

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