Dave/Bosco-
I appreciate the dialogue you two have posted today. It gives the rest of us some different scenarios to consider.
I agree with you that earnings were not up to snuff with revenues. My take on some of this comes from the conference call, and things I inferred from it. Firstly, Sales/Mktg costs were higher than normal. Half of the increase was rev related, but half was "other" causes. They are looking to bring that more in line going forward. Also, not that I can quantify it, but mention was made by Bay of a quality problem with the Accelar switches last quarter that was traced to a vendor's chip. The problem has been corrected, but apparantly there were some price adjustments made in some form or another to compensate customers for the problem.
Finally, the bulk of the Accelar switch sales were in the lower margin, smaller switches vs the monster backbone kind of switch first introduced. Customers that have done the lab evaluations and moved to "edge" implementation of Accelar have not yet bit the bullet to buy the higher margin backbone switches. Bay's profit going forward will be partly dependent on when(or if) customers make that move in a major way.
And yes, as I posted a few weeks ago, I believe Bay's ability to grow revs above $615MM would be more important than the profit generated by that rev level to the Street. Bay had to show that they could grow the basic business again after the dismal results in March. Personally, I see no landmines for Bay going forward as a separate entity the next few months, so I believe the stock of both Bay and NT should perform well until the merger/or NT's next qtrly earnings report in Oct. Of course, if Alan Greenspan throws another monkey wrench into the proceedings as he did today, we will all have to go with the flow.
Paul |
