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Technology Stocks : VocalTec (VOCL) -- Ignore unavailable to you. Want to Upgrade?

To: Nancy W who wrote (2025)	4/14/1999 9:29:00 PM
From: Jimbo Cobb	Respond to of 2349

Nancy...you are a couple days behind the times...that all happened Monday night... Jimbo.

To: Nancy W who wrote (2025)	4/14/1999 10:25:00 PM
From: Maverick	Respond to of 2349

Reasons for HQ downgrading to MKT Perform Excerpts follow: Q1:99 Preliminary Results: VocalTec Communications preannounced preliminary Q1:99 results of about $6M revenue and a net loss of ($0.85) to ($0.87), well below our forecast of $7.3M/($0.42). The Company attributed the shortfall to several factors including delays in implementations in several commercial IP telephony roll-outs, continued interoperability issues, and a more challenging pricing environment in some tenders. Sales cycles are extending and consequently, visibility is reduced in both Telco carriers and Internet Telephony Service Providers (ITSP). Gross margins are falling as VOCLF faces a difficult pricing environment with several large competitors giving free laboratory systems to carriers. In certain cases, VOCLF has been compelled to follow this practice. We expect that gross margins will be reduced from 74% in Q4:98, to the 70%-72.5% range. In addition to a revenue shortfall that accounted for ($0.12) EPS, VOCLF spent an additional $0.05 in Sales & Marketing in order to win one account. After completing a review of its books, the Company increased its bad debt reserves which reduced EPS by $0.12, increased inventory reserves and made other adjustments costing an additional $0.08 EPS. IP Telephony Trends: The IP telephony market is nascent and there are a host of issues needing resolution prior to commercial scale service deployments. And while we believe that interest in IP telephony is broadening among carriers, we also view the market development as primarily "in the lab" and in pilot programs. One important trend in IP telephony is the development of enhanced services. Ironically, the broadening of trials combined with additional requirements imposed on IP telephony systems are serving to delay commercial rollouts and add to an already sizable R&D requirement for VOCLF. ITSP providers are introducing commercial IP telephony services on a small scale. Since these are new companies offering a new service, deployments remain small as they face challenges from incumbent carriers. Interoperability has also served to slow down deployments as carriers are not happy at the prospect of being tied to sole suppliers. While progress is being made by VocalTec along with Lucent and other companies in the iNOW! group, the prospect of interoperability among H.323 vendors rema ins a work in progress. Another factor we believe is contributing to a slower deployment of IP telephony is telephony over evolving standards. H.323 is currently the leading standard for IP communications, however Session Initiation Protocol (SIP) is garnering attention as an alternate standard. There is also the developing standard of Media Gateway Control Protocol (MGCP) that serves to connect the public switched telephone network (PSTN) to an IP-based network. MGCP is not a direct competitor to H.323, but the abili ty to interconnect to the PSTN and terminate calls is an important element for early IP telephony systems. SS7 capabilities are also critical for converged networks and there is no clear standard available yet. We expect that these standards will be in flux as technology vendors and carriers wrestle to define the challenges and the solutions of IP telephony. Recommendation: The net result of these trends is a delayed deployment of IP telephony and murky visibility on the timing of IP telephony services. For VocalTec, we believe this translates into lumpy financial results and more uncertainty. We see losses increasing significantly in FY:99 and do not have a clear view on FY:00 prospects for the Company. We are introducing revised FY:99 estimates of $29.7M/($2.09). We will issue a revised FY:00 forecast after VOCLF releases results on April 27 . While we continue to believe that IP telephony is an important, emerging market that has significant profit potential, VOCLF's increased losses combined with a lack of visibility on the timing of revenue and earnings, lead us to reduce our rating to MARKET PERFORM.