Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Stratex Networks, Inc. (STXN) -- Ignore unavailable to you. Want to Upgrade?

To: don ross who wrote (983)	7/18/2000 7:00:51 PM
From: Rob Preuss	Read Replies (2) \| Respond to of 1762

DMIC revenue came in much lower than expected due (primarily) to supply chain management problems (aka parts shortages)... particularly with regard to transceivers but also with regard to tantalum capacitors and flash memory. The problems, which mostly affected the XP4 & DART products lines, were compounded somewhat by the current transition to these products from the older Spectrum products. Management is working hard on these supply chain management issues... adding suppliers and expanding the capacity of existing suppliers. A number of initiatives to help ease the current problems are expected to kick in this quarter. But the parts shortages are industry-wide (not just with DMIC) and are expected to continue for the next couple of quarters. Fortunately, the fast-growing high-margin Altium product line is relatively unaffected. Despite the lower revenue, earnings beat expectations because Gross Margins jumped up to a phenomenal 35%. due mostly to the product mix. This is well ahead of where they expected to be and its likely we'll see Gross Margins fall to 34% in the next quarter... especially if they get control of their supply chain problems and manage to ship more product as this will increase revenue from lower-margin products. The tone of the call was clear: although they are experiencing significant demand for their products, as evidenced by their record orders this quarter, and although they beat the earnings expectations, the analysts offered no "congratulations" and their questions were focused mostly on the supply chain problems. Sam Smookler was quite plain that he was not happy about the revenue number and it appears he's working hard to get that up by doing all he can to deal with the parts shortages. When asked whether the orders they've booked are "solid" or whether they might lose these sales because DMIC can't deliver product in a timely fashion (due to parts shortages), Carl Thompsen said he felt that they were "solid". He said the customers need these products, the parts shortages are industry wide (so competitors will have difficulty delivering products too), and that they already have turned down orders as a result of these parts shortages. Tax rates are expected to run at about 15% for the year. Here's how the new orders they accepted during the quarter are broken down geographically: North America $44.7 M South America 30.0 M Europe 38.0 M Asia/Pacific 13.3 M and by product: XP4/DART/Spectrum $62.7 M Altium 40.7 M DXR 9.2 M Services 6.4 M ======= $126.0 M And here how revenue is broken down geographically North America $15.2 M South America 31.3 M Europe 30.4 M Asia/Pacific 8.9 M ======= $86.7 M and revenue by company division Narrow band $38.9 M Broad band 31.2 M Long Haul 10.2 M Services 6.4 M There was also some mention that the company's "Millenium" project is on-track and that we may see some progress announced during the next couple of quarters. Millenium is an R&D effort to develop new ultra-high-capacity P-P and P-MP products based on their "velocity" chipset. Initial products will offer 2x155 Mbps capacities (twice that of the Altium) in a P-P format and these will eventually reach 4x155 Mbps in a P-MP format. Like the Altium product line, I expect these new products to be highly spectrum-efficient and that this feature (among others) will be much sought-after by service suppliers and other customers who want to make the most of their licensed bandwidth. See my earlier posts on this board for an approximate timetable by which the various products are expected to be introduced. In addition, they're continuing to work with privately-held Ensemble Communications which is developing a complementary line of lower-capacity P-MP products. Right now, DMIC is the market share leader with the broadest and most sought-after line of P-P products... they're sitting in the "sweet spot" of demand. Over the next year or so, we can expect DMIC to take a sizable share of the rapidly growing market for P-MP products as well. Unfortunately, DMIC is having difficulty exploiting the market opportunity that this strong demand creates due to industry-wide parts shortages. I expect a sell-off in the share price tomorrow morning but its not clear to me how long this will last (hours? days? weeks?). For long-term investors, I see this as a buying opportunity because I think the demand for DMIC's products and (increasingly) services will continue growing for a long time while the problem of parts shortages should ease up significantly fairly soon (e.g., toward the end of this calendar year). Rob