Overall tone of conference call was positive. Two main reasons cited
for 10% decline in revenues:
1) seasonality - companies complete purchase in Dec, so planning
in Mar quarter and delay purchase orders.
2) technology
transition - too many technology trends confusing. Gigabit
spec not in place, Gigabit vs ATM, Modem spec &
new standard, switch vs. shared, routers vs.
routing switches.
Management confidently mentioned Jun '98 quarter to be higher than Dec
'97 revenue levels, which would put Bay back into record revenues
territory. Management seemed to suggest that Mar quarter was just a
blip in the growth scenario. Management believed that previous
long-term guidance still in place, i.e., mid 50's GM for FY '99, grow
faster than industry, ...
Main issue: How much can management be trusted given this quarter's
shortfall? How do we know it will not happen again in the June
quarter?
Positive reasons:
1) Accelar book-to-bill meaningfully more than 1.0. Evaluations
expected to convert to revenues. No more MFG constraint.
Pleased with customers' reception.
2) Historically strong quarter as customers place order in
anticipation of summer.
3) Extranet / VPN switch 2000 & 4000 to ship. Customers pleased
with current evaluation.
4) Other unannounced products - new C1000, new BS 350 offerings,
new frame offerings, new modules for Accelar. In other words,
expect strong new product cycle.
5) BS 350HD 10/100 - GM was effected by 1 pct due to price
protection in channels, which was one-time only. Still price
leader, does not anticipate price reduction soon, and expect to
contribute revenue growth. Last 3-4 weeks have shown increased
in revenues, so trend looking good.
6) Management see Bay being clearly on offensive at network
center.
7) Technology transitions issue should improve visibility.
Negative reasons:
1) Book-to-bill overall expected to be at best 1.0, probably less
than 1.0 at March.
2) Currently, demand is weak across all products lines and across
all geographies.
3) Competition cited as getting more intense in 10/100 closet.
Oddly, conference call now sounded much better than previous ones when
Bay had great quarters. Management showed consistency & spoke more
clearly, although still didn't provide any breakdown of geographies,
which analysts always asked. Still not as specifics as analysts would
like.
4 quarters straight of beating estimates. 1 quarter step backwards. Not too bad.
I've to say that I'm stung as most of you are. The stock price will
depends on how much analysts buy into the Jun quarter story. It
sounded 70-75% convincing to me.
ptv |
