Jim,
I put in a call into AFCI IR on Friday. They did not call
me back. I will try again tommorrow. Is tommorrow a working
day in the US? It is Thanksgiving here in Canada.
For reference, here are my conference call notes from the
last Q.
Harry
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Note from Last Q conference call:
Revenues of 85.3 million
income 9 cents per share
In engineering, we expect number of design releases
such as the V5.2 interface which is important to their
near term requirements.
Completion of task to give UMC broadband capabiliites is
making good progress.
In sales and marketing, continued expansion will depend
on penetration of the RBOC's, capturing a share of the
growing CLEC market and expansion in to the international
market.
We are responding to all RFP in the RBOC market.
The CLEC segment has grown sufficiently to justify
the formation of a dedicated sales team to concentrate
on this market. Thei team is now in place.
On the international market, signs business in China
will have an up turn.
FInancials:
31 percent of revs from international business in Q2 versus 27 percent
for all of 1997.
Domestic revs up 6 percent over last Q.
Increase due primarily to higher sales into
the CLEC market.
Domestic sales were significantly less than expected due to
declines in sales to GTE.
RBOC rev flat from last Q.
One international customer in South Africa accounted for more
than 10 percent last Q. South Africa has been among
their top ten customers for the last 3 Q's. Venezuela (SP?)
has joined this group for the first time.
Of the top ten customers 6 were on the list last Q.
Of the 4 remaining customers 2 were CLEC's.
In Q2 we brought on 28 new customers.
25 were domestic and 3 international.
Gross profit was 45.3 percent of Rev.
Up for 45.2 percent last year but down
from 46.8 percent in the previous Q.
Decrease in margin was due to
decrease in royalties recorded.
R&D was 12.2 percent of revs for the Q.
This is up over last Q. R&D head count was
up 24 percent over the last Q.
Expect R&D to be at the high end of the
10 to 13 percent range.
Operating margin was 11.9 percent for the Q.
Balance sheet improve in Q2 over Q1.
Cash and securities as of June 30
104.9 million dollars. Up 13.1 million
from March 30 due to positive cash
flow from operation resulting in part
from reduction in accounts receivables
and inventory.
DSO decrease to 88 days from 99 days
one Q ago. This is due to improvements in
internatonal and domestic DSO improvements.
Inventory turns increased to 3.4 from 2.9.
Question:
Revue plans from V5 software development in China. When will the market
be ready for it? What steps need to be taken to deploy the product?
Are the central office switch vendors holding things up? Update on
South Africa? News report that Teledata had won a 30 million dollar
contract in South Africa. Any loss of people in sales or engineering?
Answer:
V5.2 software is a paper exercise. No central office has this capability.
It is necessary for us to have to capability to be approved by the NPTT.
We are currently testing this in China. We have gone through one phase
and are going through another. Having this capability will allow us to address
a broader market in China eveneif the central offices are not equiped.
Not all provisional PT&T are requiring this type of certification. We hope this have
the product pass this certification soon.
In South Africa, we have a contract to supply equipment through to the
end of July 1999.
Mood is good at the firm. We have not seen anyone leave as a result
of the current set of events.
Question:
What are the company's strength and weaknesses in
penetrating the RBOC market?
Answer:
Biggest strength is our technology. We have a product platform that
the RBOC's should want to have . Weakness is that we are not as
big a LU and DIGI (a little shakey here). We have to convince the RBOC's
we will be around in a few years to support that product. They are quite
demanding in terms of support resources. We have to show we have
the people and resources to support the product after we deliver it.
We think we can do this, but we have to convince the RBOC's we can.
The strength is the price cost effectiveness of the product. The weakness
is the preception that we lack the ability to support major contracts.
Question: Is the opportunity declining as a result of the rapid pricing
reductions we have seen. Are there a smaller number of applications
out there?
Answer: We are large enough to have the economies of scale to
meet any kind of aggressive pricing. I don't think pricing is an issue.
The architecture of the product allows us to be more cost effective
in certain market segments, but we plan to compete in all areas.
Question:
Percent of South Africa in the Q? Update 2000 line system development?
Answer:
The planned 2000 line system (concentrated system: only
1/3 of subscribers could get a dail tone at the same time)
was for the 2H of 1998. We decided that this would not be
of interest to the RBOC's who can't deal with this feature.
We decide the product needed to be a non-concentrated
product and that it should be ATM based. Release is
now 1H 1999.
South Africa was 13 percent of revs in Q2.
Question:
Anything in the RBOC strategy of AFCI that needs to be
strengthen or changed?
Answer:
We are going through an RBOC evaluation stage at this point.
Quesition:
Will you invest in more support since you stated that this is a problem?
Answer: We don't need to invest. We just have to convince RBOC's
the we have the support. AFCI believes we have the support and resources
already.
Question:
Are you see aggressive pricing in the RFP's.?
Answer:
RBOC's are experts on beating up on suppliers. We don't know
if we are competing against more aggressive pricing or just
regular RBOC negotiation techniques. We feel we don't face
anything any of our competitiors are facing. The cost base of our
products allow us to be as competitive as any of our competitors.
Question:
Update on ADSL products? Update on China management and
outlooking for the rest of the year?
Answer:
We have ADSL in a demonstration mode now in a TDM prodrket
be ready for it? What steps need to be taken to deploy the product?
Are the central office switch vendors holding things up? Update on
South Africa? News report that Teledata had won a 30 million dollar
contract in South Africa. Any loss of people in sales or engineering?
Answer:
V5.2 software is a paper exercise. No central office has this capability.
It is necessary for us to have to capability to be approved by the NPTT.
We are currently testut in place before we can
recognize the order.
Question:
Manufacturing capacity? You were planning to double the capcity over 1997
levels? Margin impact?
Answer:
We had plan to double capcity. We did that in Q1 in January.
We are looking at global sourcing thorough Solectron and
FLEXF as a back up.
Question:
Talk about the 28 new customers? Talk about what you are doing to
develop the CLEC channel?
Answer:
2 were LEC's, the rest were smaller independent telephone companies
in the USA. 3 were international customers. Most were US independent
telephone companies. Venezuela is among our top ten customer, but is
not a 10 percent customer.
For the CLEC sales channel, we have resources geared towards it.
There is only slight differences in the process. Some of the LEC's
do not have the small engineering resources as the telephone
companies in terms of intergration services. We are looking at
partners to address this.
Question:
Is it easier to sell to a new customers versus a most established
customers?
Answer: We prefer a more sophisticated customer. They know
what they want, though they are more difficult to satisfy. New customers
sometimes focus on features that are not important.
Question:
Will the SG&A cost rise going forward as more resources wil be required
to compete for RBOC business? Have we seen the bulk of the decline in the
GTE business? What type of partners are you looking for to help
on the integration side?
Answer:
SuperComm in Q2 increased the SG&A only once a year. We have increased
the size of the marketing organization over the last year in order to handle the
requirements of our larger customers. We have been growing the international
business. The nature of that is that you make the investment and then you
see the business over time. We are comfortable with how that is going.
Other than the legal cost, SG&A has been held flat. We don't expect G&A to
be growing significantly going forward.
We are in the midst of the down turn in hte GTE business. This was about 50
million a year. This will trend down to 1.4 million at the end of the year. We are
in the middle of that transistion. We will also see a reduction in GTE rev
in Q3. We will reach a steady state of 1.4 million in Q4.
Partnerships are engineering firms who could help CLEC engineering their
networks or help them do integration work.
Question:
Is the 28 new customers above or below your expectations?
Could you talk about the demand for ADSL products?
Answer:
On the ADSL, we don't know what the demand is. Currently,
we see telephone companies offering ADSL as an overlay
from the central office. As a result they are ignoring more distance
subscribers. We don't know when they will go after the more
distance customers. It looks slow to develop. This could change
over night though. (He did not sound convinced.)
That number is consistent with expectation. The number of new
customer at one time was important, but since we now have 600
customers, the total number of customers is less and less important
because of their smaller size.
Question:
Comment on the 2000 line system that will be delayed. Will that change
your competitive positon?
Answer:
We don't think so. We expect more than one supplier to be selected.
We expect different suppliers for different line sizes.
Question:
Is GTE still a top ten customer in Q2. Total CLEC count in the Q.
Answer: GTE was a top ten customer. 10 CLEC 's of significant.
Question:
Partnership by datacom vendors? Any comment on acquisitions by them of AFCI?
Answer:
No comment.
Question:
Early in the year AFCI hired a person to pursue RBOC business.
Is he still there?
Answer:
I think he is still here.Our first RFP to GTE which was like an RBOC
was inadequate. We have learned a lot from the exercise. We
have hired people that have experience in this area.
Question:
You sound more confident in China than previously. The
problems sound more like paper work than management
not executing off a plan.
Answer:
That is an accurate interpretation.Old problem was that
old management did not realize that the customers
were biased against us. There were things to do to
fix the relationships in the channel.
Question:
LInearity of the next Q.
Answer:
We don't comment on backlogs and visibility as of 1997.
Historically Q3 is the most linear Q. Last year the break out
was 1/3, 1/3, 1/3. We can't say about last Q. The 2nd and 3rd
Q are really the Q's where the telephone companies gear up
their ordering.
Question:
Give us a sense of what percentage of China accounts do not require
the V5.X inteface?
Answer:
We don't know. Each province has a PT&T and they make their own decisions.
They will all eventually need it. Some time this requirement is used as
a barrier to entry. The customers we have had in the past we can get in the
future we think. I don't know if we will have it this Q.
Question:
Urgency of your installed based? It look like some of your customers
are holding up deployment in order to breakdown the Telecomm Act.
Is the sales level a function of this? Do the CLEC's have enough access
to central offices to deploy and support equipment?
Answer:
We don't get enough business from RBOC's to impact us. We don't think
they are using delaying tactics. We don't think the CLEC's are being
effected by their access to central offices.
Question:
I am seeing reports that see 2 million ADSL lines by 2001.
Is that a credible number?
Answer:
I don't have a reference point, but I beleive that number. I can believe
a higher number as well. We can react to the higher number.
Question:
Be specific about the upturn signs in China?
Answer:
We are seeing orders, but can not recognize them as orders till the financing is in place.
A few months ago we were not even seeing this.
Question: Of the 28 new customers , are they customers you have
taken away from your competitors.
Answer:
Some of them were due to new terrirtories we moved into. We won some customers
from competitors. Others are customer using our product for the first time.
No break down of the numbers are available. |
