Cabletron Q2
|
Cabletron Q2
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* By Christopher McKay (MF Murdoch)
CABLETRON SYSTEMS, INC. ALEXANDRIA, Va., Sept. 19, 1996/FOOLWIRE/ -- CABLETRON SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> held a conference call today to announce result for the second quarter. Cabletron is a leading provider of intranet solutions for the "high end" of the market. The company currently utilizes a direct sales force to distribute its products. As part of its Synthesis networking strategy, the company offers Multi Media Access Center (MMAC) smart hubs as well as repeaters, bridges, cable assemblies. For network management, the company provides its Spectrum client/server based platform and is moving towards supplying Virtual LAN technology.
The company has been busy on the acquisition front in the second quarter, snapping up ZEITNET, a supplier of Asynchroous Transfer Mode (ATM) products, in July and NetExpress, which makes remote access products, in August.
RESULTS FOR THE SECOND QUARTER
Results for the second quarter for Cabletron include the acquisitions of Zeitnet and NetExpress and have been accounted for as a pooling of assets. Prior results have been restated to reflect the pooling of interests.
Net sales of $338.6 million a 28 percent increase over net sales of $265.0 million reported in the second quarter of the preceding year. Net income in the second quarter totaled $65.1 million, before non-recurring acquisition related expenses of $27.0 million (net of tax), compared to net income of $51.8 million in the comparable quarter of the preceding fiscal year. The expenses for the acquisitions were at the low end of the company's previously stated range. Both acquisitions closed at the beginning of August, right on schedule. Earnings per share were 86 cents, before nonrecurring acquisition related expenses of 36 cents per share, compared to earnings per share of 70 cents in the comparable quarter of the preceding year.
International Sales growth was $99.2 million absolute, or 29% of sales, up strongly versus the prior year. Reviewing the income statement, gross margins were at 59.3%, up from the previously restated quarter at 58.9%. R & D decreased to 11.2% of sales, versus prior quarter results of 12.1%. Selling, general & administrative (S, G & A) was up slightly at 20.3% versus a figure of 20% for the restated first quarter. The company expects to bring R & D and S, G & A more in line with historical guidelines over the next couple of quarters as it integrates the new acquisitions.
On the balance sheet, inventory turns were right on target at 3.3. Accounts receivable were 52 days outstanding on average and 53 days on ending balance compared with numbers of 50 and 52 for the previous quarter.
The company was not able to furnish numbers broken down by product.
PRODUCT HIGHLIGHTS
The company's management is currently at the Networld+Interop '96 show in Atlanta demonstrating a new range of Cabletron products. Interop management reports that the Cabletron booth is among the busiest at the show. The company is not only demonstrating its new Gigabit Ethernet SmartSwitch, it is demonstrating the switch and MMAC-Plus Switching Platform attached to every other switching technology available to the MMAC-Plus, including switched Ethernet, switched 100-megabit Ethernet, switched FDDI and ATM technology. Ethernet Gigabit Ethernet will be available from the company within ninety days and will deliver 10 times the performance of Fast Ethernet at only three times the price. Cabletron's was the only working Gigabit Ethernet at the show.
The company introduced a "slimmed down" version of the standard 14-slot MMAC-Plus chassis -- the new version is a six slot variation and will make MMAC-Plus technology available to wiring closets -- in other words, making the technology available to small office/home office (SOHO) users. The company is demonstrating a 36 port Ethernet SmartSwitch card and a 12 port Fast Ethernet switch card. The 36 port Ethernet SmartSwitch increases the capacity of an MMAC-Plus dramatically. The company was shipping 24 ports per card; 36 ports per card will allow the company to put almost 600 switched Ethernet ports into the MMAC-Plus chassis. Any card which has been developed for the standard MMAC-Plus can also be used with the slimmed down version of the chassis.
The company has also demonstrated a continued commitment to network management. The company's Virtual LAN (VLAN) technology is leading the industry and coming into its own at this point. Cabletron is the only company specifically develop a platform for VLAN -- a platform is needed to be able to make all the rules and policies work in a distributed VLAN architecture. Having completed already completed a client/server platform for the Spectrum network management system, Cabletron had a big leg up over the competition. The VLAN architecture is identical to Spectrum and uses many of the Spectrum technologies. Customers are beginning to realize the power of Cabletron to supply hardware products as well as the "right" software products to "virtualize" their network and turn it into a real business asset for them.
QUESTIONS
The company was asked about how integration of products obtained in the acquisitions is going, specifically Standard Microsystems products. The company responded that Standard Microsystem integration is "going pretty well." The ATX product line is doing very well. Network Express had demonstrated technology which will be integrated immediately into Cabletron's products -- the BRIM technology which is a Bridge Router Interface Module, which plugs into the chassis-based systems. The acquisition just closed at the end of August and there are already operable Network Express products in Cabletron's product line. Zeitnet demonstrated its Luxor ATM switch at the Interop show and it was interconnected to show full interoperability with Cabletron's own ATM switches. Zeitnet is on schedule for a year-end release of the Luxor switches.
The company was asked whether DSO's (Days Sales Outstanding, which essentially indicates how many days of sales have not been paid for at any given time. Hence, the lower the number the better) would continue to trend up. The company responded that the recent trend-up is a result of a number of patterns in the business: 1) The linearity of the business. 2) Large orders are often not being paid for until the customer is completely satisfied. 3) Some of the companies which Cabletron has acquired were not as diligent in collecting receivables.
The company was asked how Cabletron would move to sell its products to Internet Service Providers (ISPs) -- will it require a new marketing strategy or even a new business unit to penetrate the market and sell its MMAC-Plus chassis as "POPs (Point of Presence) in a Box"? The company answered that chief technology officer, Chris Oliver, has great vision for the market. The company has recently signed a deal with Motorola to develop ADSL (Asymetric Digital Suscriber Line) technology which will deployed in the MMAC Plus and will allow Cabletron to enter homes and small businesses. The company indicated that it is in talks with a number of companies to make use of the Net-certified MMAC-Plus technology. The company indicated that it had formed groups that were focusing specifically on selling to the ISPs.
The company was asked what the market looks like for Cabletron's wiring closet products, specifically the six-slot MMAC-Plus chassis. The compay belives that the typical wiring closet configurations require between 100 and 150 nodes. The six-slot MMAC-Plus, with 36 port switching boards put in it, offers over a 100 nodes with three slots left over. The density is therefore good for a wiring closet, its size is much smaller than the 14-slot MMAC-Plus, and is also relatively cheap. For these reasons, the company believes that it will be a very popular choice for wiring closets.
The company was asked to speak about its reseller channel and the products for that market. The company said that it planned to have a substantial amount of integrators to work with Cabletron to support the product line. These integrators will offer turn-key capabilities for its customers, provide support after the sale, and open up niches that Cabletron have not had access to before. The integrators will be supplying the whole product line, form MMAC-Plus down. Due to greater volume, the company believes reselling will have a great effect on its margins. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
|
|
Copyright 1996, The Motley Fool |