I have not heard the conference call yet, but here is a summary of the useful bits on yahoo.
CC replay 1-800-642-1687, #876508
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The CC was good:
1. Execution was excellent.
2. Strong sales of echo.
3. 5 new echo customers
4. 3 new optical customers.
5. Echo takes market share.
6. Wireless worldwide will be 80% and DITC is a leader in wireless echo cancellation and noise reduction (background problems). Wireless market should grow substantially.
7. Echo and optical visibility much better than 3 months ago.
8. Optical revenue less than last quarter, but will be 3x against last year. They repeated it several times.
9. Strong demand for optical from Lucent.
10. Q. revenue will not go down but will be less than 50% of total revenue this year, the management is confident in Q, knows exactly when Q needs shipments.
11. Atmosphere acquisition will not be delutive very much, just more shares (30.5 million instead of 29.5) in calculations.
12. Increase R@D and sales expenses.
13. General business outlook is great.
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You all can deny it all you want but Ditech better hope for a buyout cause it may not be around a couple years from now otherwise. The big growth quarters are over for this stock. The only reason it grew so fast before was because they were taking large chunks of market share in echo. Echo itself is growing very slowly and isn't a very big market to begin with. Now that they've got over 50% of the market and their revenue base is larger now, the big market share gains have ceased. Their only hope was their optical business but that has been a disappointment, with growth actually falling this quarter. This at a time when optics is red hot. No doubt an also ran player with no unique technolgy to compete with the big boys. If they had anything they've been bought out long ago at this cap. Still showing great YoY growth due to the super small revenue base of a year ago. But the picture is downhill from here. 3 quarters from now with little seq growth, they're going to compare against last quarter's revenue number, can you say very little YoY growth. No one wants a 1.6 billion dollar tech company with no growth. The stock looked cheap but with no growth going forward it's hardly cheap even at these prices. Play the big boys in optics not these little peons, they'll rip your heart out. Good luck.
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During CC the management was good, but there were just few questions and they were not tough.
One analyst asked about optical revenue and CEO (or CFO) answered that it was slightly less than 10% of the revenue, but he was confident in 3x this year optical revenue growth.
Few more points:
1. Several times during CC the management stated that DITC echo products are far superior to competitors.
2. The head count is 200 now, up from 100 last year.
3. The wireless market represents great opportunity for DITC.
good luck,
bimon
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It is true that much of the sequential growth at DITC has been driven by market share gains in echo products. I do believe that the echo market is expected to grow at 50% per year. While that is much slower than DITECHs gains last year it is still significant. To say that DITC will not have any growth is ridiculous. Also even if echo slows DITC has great cash flow from that business to make its push into fiber.
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hell, Ditech has a chart on their own website showing echo growth through 2003 growing less than 10% a year. Run Ditech's numbers over the last year, take into account total sales in echo and then look at how much market share they took with those revenue gains. You'll see echo is growing single digits. How else coud a company with little sales a year ago go up to a 50% share of the market in one year? The market is small and not growing fast.
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why speculate? cfo already said
growth is 20-25% in echo's...
DITC is going to post modest growth for at least the next couple quarters (ie 5-10% q/q) unless there truly is some huge surprise...
This is a great play on the future, but for the next several quarters, looks like dead money to me.
Yes, it's a 'bargain', but it's currently not a hyper growth stock, and I see many other bargains out there & those won't last.
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Echo Cancellation 4Q98 1Q99 ---2Q99--- 3Q99 ---4Q99 ---1Q00
Total Revenues $64,087 $50,339 $66,571 $87,127 $87,882 $90,000
Ditech ---------7,087-- 7,339-- 9,571-- 23,127-- 31,882-- 42,000
% market share 11.1% 14.6% 14.4% 26.5% 36.3% 46.7%
Tellabs ------57,000 43,000 57,000 64,000 56,000 48,000
% market share 88.9% 85.4% 85.6% 73.5% 63.7% 53.3%
This table is a little tough to read when pasted here but it does show significant (apx 50%)growth in the Echo market as a whole last year
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looks like this quarter we're feeling the hangover from the mind-boggling Q order which was spread over the previous 2 quarters. My assumption that DITC's optical isn't really that stimulating has been correct so far; I guess now we know why they blew $80M for Atmospheric. Tomorrow I expect that we'll open pretty flat but below 55 and possibly even below 52.5 to block call option open interest sellers. Good thing there's a relatively large put open interest above 55; it should stabilize us somewhat.
I have emailed DITC and commented on their chart on their web page related to future EC sales a while ago but they have not changed it for some reason or other. EC sales should continue to increase 50% Y/Y in the near future (as someone posted previously). Wireless EC in the US will continue to be OK, but will only explode when the govt does something to enable wireless data providers to enter into the low frequency bandwidth channels that it inadvertently screwed up by licensing (them) to UHF TV stations and then requiring cable co's to broadcast local UHF stations which actively transmit thru antenna, thus gridlocking this band.
Sorry to ramble. IMHO, although Q is still the premier receiver of our EC, its large order inadvertently skewed DITC's current Q revenues downstream, causing a great deal of (understandable but overdone) frustration for shareholders. The insiders (or outsiders, as Bimon calls them) knew this was coming and bailed; after all, they attend the Board Meetings.
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I do not understand this board or probably I am missing something.
1. DITC beat earnigns estimates by 20.5%, revenue estimates by 11.5%, during CC the management said it was an excellent quarter. (These estimates only grew and have never been decreased).
3. Based on the new SEC rules few million were differed, otherwise the revenue would be the same as prev. qtr.
2. All year along this board talked about Quest and the risk it could cancel the contract. The management stated that Q. contract is OK (no order cancellations).
3. The management stated that optical business would grow 300%+ this year. DITC just started building its optical side of the business!
What is wrong? Why does this board look like DITC is going out of business and the stock will be desisted soon?
Would you be so kind to point out all companies which grew revenue by 350% and beat estimates by 20-40% last 6 quarters and trading at 32 times trailing earnings and 10 times trailing revenue?
good luck,
bimon
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Institutions sell on splits and superior earnings reports, particularly when it is close to options expiration. Then, 4 to 6 weeks following the "tank", institutions buy back in to the same stocks at a much lower price. Your examples of KEM,AMAT,VSH are good ones. AMAT's CEO described it's business backlog as "unbelievable". But, as you said, for the followiing 3 to 4 weeks, AMAT stock tanked. Then, the institutions started coming back. KEM,VSH will also come back with a vengance. Both are, in my view, unbelievable values. Another one which was whacked was SSTI, which also came out with strong statements about it's bright future. There are indeed bargains being presented by institutional activity. It is intersting that individuals outperformed institutions over the past 12 months. It appears that many individuals are "buy and hold" investors who know when to stay in and when to exit. They read the reports.
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No need to worry about DITC provided your time horizon is longer than a few quarters. Both their core businesses (DWDM and echo cancellation) are great markets to be in. The problem for them right now is that the optical business isn't being built overnight, and their echo cancellation products are ahead of their time. Both these issues IMHO will be remedied over time. It's no coincidence that Qwest is one of DITC's largest customers and that Qwest has a more advanced network than all the other major carriers. Qwest saw the economies of scale that can be acheived when you treat voice and data as identical traffic on your network. They also realized that the typical consumer is going to expect the same voice quality that they experience through the other carriers' older networks. This means buying lots of echo cancellation equipment, because echo problems are inherent to voice over IP. The problem for DITC is that the other large carriers have been putting off upgrading their networks as long as possible because they have billions invested in the old equipment. I think this is situation is just beginning to change. The telecom research group Insight Research Corp. thinks so too:
Continued deregulation and opening of markets worldwide will
stimulate the spread of VoP. Over the next five years, these VoP
technologies will take an increasing share of the world’s
telecommunications service revenues. From a mere $870 million in
1999, VoP-based services will grow to just over $98.7 billion by
2004. While $98.7 billion seems like a huge number, it only represents
a small portion of the voice revenues received by service providers.
Should the major interexchange carriers (IXCs) move more quickly to
migrating their core infrastructures to ATM or IP, VoP service
revenues will grow more rapidly than forecast. The upside potential for
VoP is enormous, especially as data traffic now exceeds voice traffic
volumes.
<http://www.insight-corp.com/iptele.html>
As for the DWDM side of DITC's business, Insight has an opinion on that too (on DWDM, not specifically on DITC). The report is a couple of years old, but I think it's still relevant:
The DWDM market will grow from $980 million in 1998 to $5.2
billion in 2003. The first deployments of WDM systems were in the
US, but this has now expanded to the UK, Italy, France, Norway,
Finland, Japan, China and Korea. Undersea submarine cables are
almost entirely relying on DWDM. DWDM is also being deployed in
broadband networks using new fiber technologies, optical amplifiers
and SONET and SDH transport terminals.
<http://www.insight-corp.com/intlfo.html>
With a market this large it's hard to imagine DITC not getting a decent share of the pie.
-cosmo
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During the question and answer session, Montgomery stated that the ANR wireless background noise reduction product is the first such product that was seriously compelling to the wireless market. Prior to this offering DITC's presence in the wireless market was negligible. He also stated that the wireless market for echo cancellation is at least as big as the wireline market, and growing faster. The only real competitors in these markets are Tellabs and Lucent. DITC already has 3 new wireless customers and this product was just announced 2 days ago.
Another specific he mentioned about the ANR product that's not is the press release is the fact that customers can provide in-service upgrades. This means they can download the latest firmware version from the internet and flash it into the module without taking it out of service. The competitor's products are hardware based and require that a unit be taken out of service to have a board replaced if an upgrade is required. The future is looking very bright if you ask me.
-cosmo
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