Conference Call Comments for ADPT Jan. 20 conference call....
I listened in on the conference call, and gleaned the following from Management's comments:
This was a "disappointing" quarter for ADPT for 3 principal reasons: (1)peripheral technology solutions business declined $10 million due to the turbulent disk drive market; (2) The sell thru of host adapters in the North American distribution channel was flat during a time when it is normally robust; and (3) Japan revenues were down due to instability in Asia.
The company recognized that inventory in the North American channel was backing up, and elected not to recognize the revenues reflected by this inventory.[Query how early in the quarter they knew this and made this decision, and why didn't they announce it?] This was a conservative move on their part... they could have elected to recognize the revenue and enhance sales, but did not. Apparently, some of this inventory is still out there...this was not clear.
As to the SCSI business, there was a decline in the $3000 to $5000 desk top application segment due to lack of corporate purchases.Server SCSI was fine, but this one desk top segment was lacking as corporations shifted their buying to more limited function pc's in the sub $1000 price point range. SCSI sales thus declined 12% in the quarter. But now pricing on SCSI is decreasing, which they say should stimulate demand.
Going forward, the company plans to introduce a marketing program designed to increase demand for its SCSI products. It plans to closely monitor expenses with a goal of keeping them flat to down for Q4 98. As for FY 1999, the goal is to get expenses down to the low 30's percentage wise by the end of FY 99. The first half of FY 99 will be seasonally slow. The second half of FY 99 should pick up as we see upgrade cycles begin for Windows NT 5.0 and Windows 98.
Q4 98 will be about the same as Q3 98, with about $250 million in revenues, and about $.40 in operating EPS. The company sees a revenue decline of about the same as Q3 for its PTS segment (10 million)for Q4 98. They mentioned that they have a couple of Asian customers they are watching closely, and mentioned Micropolis by name. They commented that their revenues are driven primarily by sales into North America and Europe, not Asia. Japan accounts for about 12% of their total revenues, and all of Asia including Japan is less than 15%.
Overall, I thought the questions by the analysts were very poor. Unclear to me was the impact that the Network Computer will have on ADPT, or the sub 1000 pc. They just did not pursue this. I did not come away from the telephone conference feeling particularly upbeat, and indeed, things were "foggy" for FY 99. Yes, they are going to have a 10 million share buyback, and Yes, they are going to have a new marketing program, and Yes, they are going to try to control expenses better, but beyond this, the guidance was lacking. If NT 5.0 and Windows 98 are going to be what it takes to get back to traditional growth rates, we could have more than one uninspiring quarter in front of us going forward.
Regards. |
