Sequent Message Board - Msg: 2547249

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Technology Stocks : Sequent

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To: Marv Bergman who wrote (642)	10/25/1997 10:33:00 AM
From: Richard S. Schoenstadt	Read Replies (2) of 1229

Here is a summary based on my notes. I am not a very good notetaker so I wouldn't rely 100% on what I write here. Bob Gregg? and John McAdam were the 2 company officials on the call. First made the point that historically Qtrs 2 and 4 are strong. Qtrs 1 and 3 are weak. This was no exception. Nonetheless they were disappointed by Qtr. 3 revenue. The problem was primarily in Europe. The US was good, very strong, better then the expected in fact. For the first time in a long time all three regions surpassed their targets. UK was ok. A little disappointing. Main problem was with continental Europe. Germany and France. Normal slow down was compounded by dollar (strength I guess.) 4th quarter in europe looks strong. Also there were some currency losses due to hedging. 2 million. Sounded very unhappy about this. Somebody messed up and they were quite definite about this will not happen again. There was a 1 time tax benefit which offset this loss. % of international business was lowest in long time due to strength in US and weakness in Europe. Of their product revenue 75% is now Numa. About where they expected. Should be even higher in the 4th quarter. Symmetry (old product) inventory in good shape. By which they mean they don't have a lot left which may eventually have to written off. One product transition problem in the 3rd quarter. This the introduction of the fibre channel switch. Fibre channel switch is important in large installations improves performance and availability. However this was solved late in the quarter and is now shipping with no problems. Incredibly successful. Gross margins are down slightly. Expenses (in line with 2nd qtr I think) at 27% down from 33% last year. Tax rate in the 3rd quarter was 20% due to one time credit. Will be 26% in the 4th. However there should be no currency losses in the 4th qtr. (or someone's head will roll.) Balance sheet improved due to 150 million dollar secondary. Receivables rose to 120 dso. This is unacceptable. Largely due to boeing where stuff has been shipped but not paid for. They expect Boeing's effect to resolve itself in the 4th qtr and to go back to normal which is 100 dso. However they want to eventually get it down to 70-80 days. However collection is not an issue. They have an excellent collection record. Inventories are high. This also is a temporary effect. In part because of the evaluation units out. In other cases units have been shipped but final company approval has not been made. They expect inventory to improve as well. Overall outlook very encouraging. Pipeline for 4th qtr looks very good. Broad picture very happy. Excellent shape. Committed to 30% growth. 4th quarter growth should be 30% over last year. ( Off hand I don't see how they can make .52 a share, more then double the third qtr. when growth is only going to be 30% over last years fourth quarter. That was 183 million. So 4th quarter this year would be around 238 million.) Feel very positive for product road map in 98. Will be adding windows NT features. They think this is exciting. Should give them a competitive advantage over Sun - which doesn't have an NT capability. They remain convinced that their data systems strategy is the right one. That it is the right focus. (I.e. in essence they are selling data systems. Numa comes along for the ride. That's my interpretation. Although it's numa that they make the money on.) As part of this strategy they are aggressively building global alliances with Systems Integrators like EDS and also Andersen and the big six (soon to be five or four) accounting firms (I assume). These alliances are key part of their strategy. Thiis will improve the overall productivity of their sales force. They have a new post of vp for global alliances. It looks like they will be increasing their sales force by 20%. Most of this will be in the global alliance area. Also with respect to getting business for the numa-q they once again emphasized their professional services. For the first time in a while services made money. They could make more but they are not going to. Since services is what drives the product business. What about competition with HP and Sun. Aren't seeing it yet. Maybe in first quarter. However repeated several times they think HP and Sun moving into this area is good since it validates the notion of open system data centers. They expect them to stir up business. Again they think their competitive edge is their service business and the fact they are an intel platform. They don't think competition is a major concern. Currently sales productivity is above 96 but not back up to 95 levels. Repeated that's why the are doing alliances. With respect to sales the mix is a lot better. Before big sales were carrying others, now a little better balance. Sales force is flat since beginning of year. As noted above they expect to increase 20%. Expenses they expect to increase in absolute dollars but % to go down. They see some real opportunities to be more efficient. With respect to Boeing. They think there will be no fall off in business after this original contract is finished. There is lot's more potential at Boeing and also at McDonnell Douglas. More about NT. Clearly a competitive weapon. NT is not a question of if, but when people will move to NT. Will have it in 98. Already running a prototype with 8 quads. A constant line of people wanted to see it. Sun is a tremendous competitor but they don't have a path to NT. Service personnel has increased from 326 to 350. again they could increase margins on service personnel but they won't. they are used as a competitive weapon. Tax rate for fy 98 will 31%. (Although they mentioned several times that competition wasn't a concern. They also said they needed to get expenses down due to competiton.) RS

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