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Technology Stocks : Xylan -- Ignore unavailable to you. Want to Upgrade?

To: Gary Korn who wrote (2787)	10/15/1998 12:40:00 AM
From: Tim Luke	Respond to of 4135

the bottom line here is this very undervalued company is kicking ass in a down market. Great Stock!

To: Gary Korn who wrote (2787)	10/15/1998 2:26:00 AM
From: pat mudge	Respond to of 4135

Gary -- That's a great article. I can't compete with your cc summary, but for what it's worth, a few additional notes. The most important comment came midway through the call when the CEO said Alcatel and IBM were expected to hurt, but they didn't. "This is the best news of a very good quarter." OEMs were 32% versus 41%, down 16% sequentially. Alcatel's purchase of Packet Engines: 1) they focus on expensive, high-end, layer-three and XYLN focuses on ATM backbone and wiring closet. 80 to 90% of price is in wiring closets. 2) Alcatel says both companies' products will work together. 3) Alcatel moving into competitive position with Cisco which could benefit us. 4) Extension to ALA contract gives them better sales terms. Other channels growing rapidly. VAR/Direct 25% sequential growth; now 68% versus 59% last Q. IBM $15 million versus 16.7million; down 10%, now 16% of total revenue versus 20%. December should be the same. IBM sells its own products at thecenter. Expect volume in '99. ALA $13.2 million versus 15 (seasonality and inventory); 15% of total revenue versus 18% in June. New contract. Revenues up slightly. 5 - 6 weeks inventory earlier, now 4 weeks. ALA strong Dec. quarter but aggressive pricing will not result in big rev. increase. Over-all growth is faster than competitors due to excellent sales force and support team. Co. at beginning of new product introductions --- more in next few months: ATM switching, GigE "strong," LAN products for center of network, products for wiring closet. Built-in GigE uplinks in next products. High end of switching business. Based on ASICs. OmniSR will provide some of lowest prices in the industry. 47million shares outstanding, 1.5 million repurchased this Q at $28.1 million; 2.2 million repurchased this year. NA revenues up 26%, representing 54% of total revs versus 46% last Q. Europe down 6% sequentially, representing 30% versus 35% (some seasonality). Asia now 13% versus 14%. Still a troubled area --- see same volumes in Dec. "We focused on other areas and didn't let Asia hurt us." Latin America 3% versus 5%, some softness in OEM. Market acceptance of new small switches. OmniSR should grow. Doubled small switch revenues and yet kept margins. Will maintain margins. Headcount: 1,000 versus 938 in Q2 and 613 a year ago. Added 29 engineers and 35 sales and marketing. 250 new accounts. Growing faster than Cisco. How? Strong technology. I ASIC --- dozen shipping today. Custom silicon. II Value-added software --- wide range of services. III Integrated switching platforms. Any-to-any combinations. Modules added. IV Network-wide operating system. Every switch has same body of software. Net management easier. OmniSR including GigE will ship in volume this Q. Supports ethernet, FDDI, ATM, etc. 150 Gig OmniCore next year. Best highspeed LAN in industry. Less expensive than comparable Cisco. Expect: strong growth of OmniStac, strong growth of module products, strong growth in DIR/VAR, and modest growth in OEM. Also strong growth in NA and EU. This will offset Asia. Q&A: Q: Growth in industry? A: Switching growth is 24%. That equals 5 to 6% sequential --- we can outdo that in the Q. Margins same as Q2. Q: Will XYLN track industry? A: Will be faster than industry. Some estimate 450m to 500M range for '99. $450 to 460 m in '99 is close. Hold to operating margins. Q: Share count? A: Now 47m, growing to 51m by Q4 99. Q: Adding VARS? A: Those who address over 10% we address: Asylan in Europe, Anixter, Unisys, TechData. . . basically current VARS – a lot of upside here. Q: Did you buy stock at end of Q? A: There was black out from Sept. 15 to 3 days beyond earnings announcement. Q: Will resume then? A: Very attractive. Yes. Q: Use 48M? A: Yes. Q: VAR vs. Direct, how are they split? A: majority to VAR. Q: re: backlog, OmniStac? A: Over 10%, good backlog. Will ship to end users. Very few channels stock products. We normally ship direct to end users. ALA moves quickly, couple months lag. SR --- we'll see something in Q4. IBM a little slower. OmniSR --- will be higher than 10% of mix in current Q. Shipping to end users. Very few channels stock our products --- orders are to end users. Q: any announcements in ISPs? A: Service providers? --- we'll have a number of announcements in various areas. Q: Sales to carrier space? A: double digits --- ALA also in Carrier space. Growing faster than corporate average. Q: Price drops in ASPs? A: dependent on mix. Reality is because of ASIC development we'll have major reductions. Q: Asia revenues when? A: Q4 flat. Exciting programs going on there. Opportunities for this year. Q: Europe? A: ALA --- this quarter expect good growth. Q: ATM versus ethernet? A: The majority of deals have involved ATM. As world is starting to accept gigabit --- and is only beginning --- we may see shift. Europe is strong in ATM. Majority in Europe, including Alcatel, are ATM. Different mix from Packet Engines. Q: Other competitors? A: Cabletron weaker now. Some weakening in BAY. 3Coms not in our space. Seldom see them. Cisco is clear leader. We have to beat them. Q: Direct OEM, why such good growth? A: Direct less than 20%. Become more productive because of breadth of product. We create business. XYLN has built best sales organization in the industry. Productivity is up. [Gave medical center at NYU as example.] Q: Anything dramatic this Q? A: We kicked butts and they worked harder. NA not as much seasonality. Double digit growth in NA. [Discussion of IBM products. Difficult to follow b/c I don't know product numbering.] Q: Average price of shares repurchased? A: 1.5m at $20 (19 plus). Q: OEMs up slightly? A: Yes. Q: Other OEMs? A: Yes. Alcatel and IBM will both be up slightly. Q: How did you get inventory levels down? A: Sell through. Q: OEMs --- out a year what will level be? A: Up slightly. Alcatel a lot of success in Europe. Room for upside visavis Alcatel and Cisco. Will decline as percentage of total. Q: OmniSwitch down? A: OmniStac wasn't there. Now it is. OmniSR will increase revs. Q: Nortel will ramp? A: Nortel anticipates reasonable and steady growth over next 5 quarters. Stackable and modular products will level. Xylan sells software to go on switches. OmniStac, and OmniSwitch ATM --- all to sell software. Q: Is OmniCore NEBs compliant? A: NEBs complaint is important in carrier products. Any product out of Xylan are NEBs. More carrier business. Q: Average deal size and how changed? A: Average is going up. True worldwide. Six figures are typical. Revenues we're painting are small at the outset. [Implied they could become larger.] Q: Competition? How about Fore? A: Fore does ATM in NA. We compete some. Packet solutions are better at desktop. Q: Is Cisco upping manpower to compete? A: We watch all deals won and lost. Our challenge is to increase sales force. Must increase mind share and space in VARs. Staffing direct sales.