My observations from the cc (Noting, I was interrupted several times):
Reaction: I thought it was quite positive. The bulk of the discussion was kept on the solutions/systems side of things, and what's coming up. The products that are going to be important in the future are on track, growing. There was little discussion of past problems. The rational analyst should come out of this call thinking PAIR should start making some serious money in 3Q-4Q and into 2000. And who cares whether the company is making a few cents now?
Notes:
T1/E1 has moved to 54% of revenues, PG2 and Flex from 31% to 27%, Campus to 8% and Royalties 7%.
The Royalty number is from the Rockwell deal, and represents amortization of the upfront payments. It will be running off(it's almost done?), and will be replaced by ongoing chip sales royalties--but those won't start this quarter, so the Royalty number will go back to under $1MM for the rest of the year.
The company remains pretty dominant in the "small subscriber" market, able to control pricing. They have made unilateral price reductions in this area, to maintain their dominant position.
The PG2 and PGFlex products are the areas they are de-emphasizing, as not part of total systems solutions.
International was 10% of total sales, L.America was weak, Europe strong. They are very close to announcing a new head of international, to succeed the retiring head. Candidate is strong in Voice and Data, with an international background.
They are down to a short list of candidates for new head of No. America sales. Sales force has been reorganized by business unit, to allow them to better implement systems solutions for their customers. This should let them leverage in the "next generation" of adsl deployment.
Gross margin is now 42%. This should move to 45% by year-end. Key assumptions on this include slowing of price reductions (price declines this quarter were actually slightly better than they had expected), and HiGain 98 becoming a larger portion of the business--as it carries better margins than HiGain 97. (They are "very pleased" by the reception HiGain 98 has had). Small Subscriber products, which carry the healthiest margins, will continue to do well.
Avidia --lots of technical talk that went too fast for me. They appear confident in its ability to be deployed to advantage in a number of settings, for instance using several T1's to OC-3, without using up all of the OC3 in the deployment. Very ecomical in thin deployments. Trials are good, with several dozen ilecs and clecs. Not rboc's, who aren't ready. But, most large telcos, including MCI and Sprint. Revenue projections assume purchases by the smaller clec's and ixc's(?). Avidia will be in full release this quarter. Significant sales are still seen for 3Q and continuing to ramp up in 4@. $20 MM this year, and more than double in 2000. Any single commitment by a large telco would of course skew these numbers dramatically to the upside. "It is generally known" that MCI and Sprint are evaluating the product, as are most large telcos. They have not committed one way or the other at this time.
ANDA transaction is demonstration of emphasis on building total systems solutions. (Implication is that more minority investments are planned, where products are complementary, and for instance might alolow broader deployment of a Pair product).
Re SBC--Adtran has begun shipping, and will thake share in the HiGain area. But, PAIR will still see oveall growth with SBC, as they will still have HiGain sales, and will increase across their "full product line" with SBC.
Re Bell Atlantic--There were still some HDSL revenues in the quarter, which are now just about gone. But, PG Flex and Plus are "booming". And, they are working in the other areas. They hope to keep, or perhaps regin some position in the HDSL area.
Are they looking for operational efficiencies? Not really. Pascoe sees the need instead to concentrate on top line growth.
Tax rate at 34% should continue, or slightly lower.
GLite--Not seeing any implementations in the industry. Final checkoff isn't until June, so any implementations would be pre-specification anyway. (My impression was that Pair's not really focusing on GLite as an impact item for them, which I think is good, since it will likely be the commodity portion of the business).
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Okay. That's my take. Keep in mind, I'm not a secretary, and may have gotten some things mixed up! And, that I wasn't able to listen to the whole thing, because of interruptions.
Best to all,
John |
