If last quarter had the coach and players running across the field before the start of a game --- band blaring in the distance, uniforms spotless, eyes gleaming with excitement --- then this quarter has them at half-time, up by one, nerves taut, expressions serious, brutally aware of what it took to gain the lead and what it will take to win the game. I can almost hear the coach telling the guys what a fantastic job they've done, and then adding, "Now get out there and do it again. . . ."
Alan opened his portion of the call by re-stating his objectives and going through them one by one to see how he measured up.
1) Can we run the business? We've made good progress in spite of holiday periods in Europe and Canada. All three regions had increases in sales volumes. Gross margins are constant. Gone from 8 to 15% ROI.
2) Can we grow market share? WAN/packet has grown by double digits. China Post contract will be announced tomorrow morning. Launched 36177 at InterOp, tightened IP focus, Virtual IP market banner released, including MPLS, book to bill greater than one.
3) Can we grow new businesses? In LMDS we've shipped to MaxLink and Connectus. Still hopeful for new US partner in 1QC99.
4) Can we build a leadership team? Two new Executive VPs announced, and several other VPs added --- all in sales and marketing.
Ken Wiggelsworth presented the financials which I won't run through except to point out that the year to year comparisons aren't indicative of the company's strength since last year had $45 million from UBNet.
2Q1997:
Enterprise networking revenue, comprising the VIVID switched routing system and the former UB Networks products, was approximately $45 million. . . .
Random comments from CFO:
"Ninth quarter book-to-bill over 1. . . WAN/packet growth 53%, up 10% QtoQ, fourth quarter in a row with sequential growth in largest segment of business . . . TDM had highest revenues in 5 quarters. . . all three regions grew. . . have $761 million in cash, DOS 82 , down 10 from last quarter, inventory turns 4.3X, ROI highest in 1 ½ years at 15%. "
Q&A
Q: Size of C&W contract in relation to others?
A: C&W will expand their networks by $1billion over 5 years. . . don't know how many hundreds of millions will flow to NN.
Q: Size of China Post contract?
A: Will have press release out tomorrow.
Q: How will C&W ramp?
A: Some limited business in 4Q and significant beyond that.
Q: What contribution to revenues is 36140? Also 36177?
A: Both are shipping and contributing now.
Q: DSO improvement is nice; what's going forward? Growth for 170? Use of Cash?
A: Still concerned linearity is not under control. 170 growing. . . 3.1 is shipping and sales going up. Cash will be put back into business. . . looking at alternatives, including acquisitions.
Q: Can you quantify 170 growth?
A: Double digit for WAN/packet.
Q: What about gross margins and are there any changes in R&D?
A: No significant changes in gross margins. R&D is down in absolute dollars. . . no significant increases seen. . .
Q: Timing of 50 gig and OC-48?
A: Middle of '99.
Q: Could you elaborate on write-downs? Relocation in Asia/Pacific? Equity investments?
A: Will OEM ACC's Tigres, so impact on revenues will be small. Non-recurring items, LAN/layer 2 are from UBNet. . . impact on revenue very minimal, below 2%. This has nothing to do with VIVID. Asia-Pacific personnel being relocated. As for equity investments, we always evaluate each investment. It's a normal review we do every quarter. Don't alter sales model.
Q: What is length of TDM rebound? Outlook for Asia-Pacific markets?
A: We're running products as "end of life" investment. Looking at costs and gaining efficiencies. Demand remains quite good. Tide not going out rapidly. China is significant part of Asia/Pacific. Headquarters now in Hong Kong. Will increase our presence there.
Q: Can you comment on enterprise business?
A: Large companies can own own [networks] and we'll sell direct to them. We also assist carriers in selling to them. Selling LAN to enterprise is not strong. We're going after Ascend in WAN.
Q: How about affiliates?
A: I encourage TM to add. There is "brilliant progress." We divest those that aren't strategic. Directory-enabled networks related to Microsoft is in "strategic category."
Q: What about Siemens alliance?
A: Alliance has been rejuvenated. We've worked hard to strengthen it. At AGM I said, "Alliances come and go. . ." Now, if we are stronger against Ascend and Cisco together with Siemens. . . [this is] positive. . . 177 and 50-gig will be alliance products. . . NN's LMDS and Siemens' ADSL. . . not clear yet. . . We've also cleared up rules for behavior. . . [reference to sales and marketing]. . . Greater than 10% of sales with Siemens. See double digit sequential growth."
Q: Explain WAN going to IP versus ATM.
A: [Will send report through mail. . Then short description of QoS, etc.]
Q: Will there be acceleration of WAN/packet in back half?
A: It did grow in double digits Q/Q. Fastest growing segment of the business. "Cable and Wireless, China Post, and other things rumored within the industry will continue to contribute to coming quarters."
Q: ATM for Class 4 on the horizon? RFP status, including status of GlobalOne?
A: We don't try to upstage a customer. . . no reason to start that now. . . a rumor exists in the investment community. . . [don't comment] because it doesn't conform to policy. . .
Q: Any time frame?
A: My wife's birthday is December 3. . . and it comes out before then.
Q: Regarding financial partners for carrier deals, with more and more cash is it viable to use it at this point?
A: SS7 is interesting to acquire. . . with cash we can do that. . .
Q: Capital spending plans for global partners?
A: data-networking is in vogue all around the globe. No indication of pull-back in spending.
Q: R&D spending is down, head-count up, how?
A: Re-prioritizing --- group for IP has increased; switching has been reduced. . . no significant change in head-count.
Questions I might have asked had the forum been opened to investors:
1) Where does Cambrian Systems fit into NN's future and what revenues will flow to the company and when?
2) The last two conference calls have included comments re: "major partnership." Is it still a possibility and, if so, in what time frame?
3) Besides SBC, what progress has been made in RBOC space?
4) If one of more of your partners announces an acquisition or merger, what affect will it have on NN?
5) What strength does your latest affiliate, Ubiquity, bring to the table?
Then again, I probably wouldn't have had the courage.
Regards,
Pat |
