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 : Cabletron Systems (CS: NYSE) -- Ignore unavailable to you. Want to Upgrade?

To: Sowbug who wrote (3252)	3/24/1998 7:01:00 PM
From: SteveG	Respond to of 8358

Long since flat, but thought some may appreciate H&Q Farrokh's comments: ========== Cabletron announced Q4FY98 earnings $0.04 below street expectations. Earnings per share was $(0.04) which did not meet street expectations of $0.00 and our expectation of $(0.01). Revenue was $312 million as compared to our estimate of $305 million. The company had preanounced on March 2 and had expected revenues for Q4FY98 to be in the range of $305-$320 million and earnings for Q4FY98 to be breakeven or at a small loss. The company experienced an order shortfall at the end of the quarter due in part to weakness in some domestic segments and delayed Federal Government decisions, despite the fact that it usually recognizes a large portion of its orders in the domestic segment in Q4FY98. Gross margins declined, from 50.5% in Q3FY98 to 45.8% in Q4FY98. The company is experiencing some inventory correction as it transitions to a model which is more channel focused. The company also closed the DEC acquisition earlier than expected in the quarter, which incurred higher than expected operating expenses. On a more positive note, international revenue increased sequentially in terms of dollars and was 40% of revenue as compared to 35% in Q3FY98. This improvement in international business, even without the full force of the DEC acquisition under its belt, is a positive for Cabletron. Latin America and Pacific Rim did fall short of expectations, due to project timing and currency issues, respectively. We expect the company will now implement additional cost savings measures as well in addition to eliminating over 600 positions. Cabletron is concentrating on better alignment of its business strategy and continues to focus on cost savings. The company met its goal of eliminating over 600 positions which has resulted in annualized cost savings of around $40 million. Cabletron is still planning to close down manufacturingfacilities. In total, it plans to achieve annualized cost savings of around $60 million. The company will continue to focus on linearity and inventory issues. The quarter was backend loaded, but DSOs improved slightly, from 81 days to 78 days. Inventory turns were 2.3x. Recommendation: We continue to rate this stock a HOLD. While Cabletron is making some moves in the right direction, including a more focused approach to the company's methods of distribution, more activity in developing partnerships and acquisitions, and the implementation of its SAP program, the company still faces many challenges. While the YAGO acquisition and DEC acquisition will help it to fill some of the holes in its product line and improve its channel business, we believe the company has a ways to go. The product transition from shared to switched continues, putting pressure on gross margins. As well, there is a higher level of competition in the switching market and the company faces challenges related to the integration of DEC. There may be further transition issues relating to channel inventory in Q1. We are reducing our numbers for FY99 to reflect lower gross margins and higher operating expenses.