Yesterday, after market close,
Polycom Inc.
(
PLCM
) declared disappointing financial results for the first quarter of
2012, missing the Zacks Consensus Estimates. Management cited
continuation of sales execution problem in the North American
region and sales fluctuations in the Asia-Pacific region as the
primary reason for the poor performance. In synergy with these
negative factors, the stock price of Polycom dropped by $0.68
(5.11%) in the after market trade on NASDAQ to $12.62.
GAAP net income in the first quarter of 2012 was $15.1 million
or 8 cents per share compared with a net income of $34 million or
19 cents per share in the prior-year quarter. However, adjusted
(excluding special items) EPS in the reported quarter was 12 cents,
missing the Zacks Consensus Estimate of 14 cents.
Total revenue in the first quarter of 2012 was $367.5 million,
up 7% year over year, but well below the Zacks Consensus Estimate
of $373 million. Segment wise, UC Group Systems revenue was $240
million, up 5% year over year. UC Personal Devices revenue was $67
million, up 8% year over year. UC Platform (Network Infrastructure)
revenue was $60 million, up 12% year over year.
Geographic Distribution of Sales
In the first quarter of 2012, the American region generated
approximately $179 million of revenue, up 2% year over year.
Europe, Middle East, and Africa generated $100 million, up 16% year
over year. Asia Pacific region accounted for the remaining $88
million, up 7% year over year.
Margins
Gross margin in the reported quarter was 60% compared with 58.7%
in the year-ago quarter. Operating expenses in the first quarter
were $195.6 million, up 15.4% year over year. Quarterly operating
margin was 5.4% compared with 10.5% in the year-ago quarter.
Balance Sheet
At the end of the first quarter of fiscal 2012, Polycom had
nearly $618 million of cash & investments and no outstanding
debt on its balance sheet compared with $591.6 million of cash
& investments and no outstanding debt at the end of fiscal
2011.
Cash Flow
During the first quarter of fiscal 2012, cash flow from
operations was over $32 million compared with $45.6 million in the
prior-year quarter. Free cash flow (cash flow from operation less
capital expenditure) in the previous quarter was $16.2 million
compared with nearly $30.8 million in the year-ago quarter.
Near Term Concerns
Currently, major concern for Polycom is its lukewarm performance
in the most important North American regions. The company is
significantly suffering in this region for the last couple of
quarters, mainly due to poor execution problems of marketing and
sales. Management has done several restructurings, which are yet to
generate fruitful results. The problem seems to be double-edged (1)
growing competitive pressure and (2) precipitous macro-economic
fluctuations, resulting in volatile tech spending.
Competition Looms Large
The uniform collaborative communications market is fiercely
competitive resulting in cut-throat pricing strategy.
Cisco Systems Inc.
(
">CSCO
)
became the major player after its acquisition of Tandberg
TV. New players such as
Logitech International S.A.
(
LOGI
) and
Microsoft Corp.
(
MSFT
)
,
despite being a partner of Polycom, make the competitive landscape
more intense.
Logitech entered into video conferencing market through the
purchase of LifeSize Communications Inc. Further, Logitech acquired
Italian firm Mirial, a leading videoconferencing solution provider
to offer video-calling on tablets and other mobile handhelds.
Microsoft has acquired Skype, a leading developer of free
video-calling software for PCs and other digital devices.
Acquisition of Skype will enable Microsoft to offer
videoconferencing from desktop computers.
Our Recommendation
As of now, Polycom remains the only pure play unified
collaborative solutions provider.The company stands to gain as
enterprises, governments, and educational institutions increasingly
recognize the productivity-enhancing benefits of video
conferencing. We thus maintain our long-term Neutral recommendation
on Polycom. Currently, it holds a short-term Zacks #3 Rank (Hold)
on the stock.
CISCO SYSTEMS (
CSCO
): Free Stock Analysis Report
LOGITECH INTL (
LOGI
): Free Stock Analysis Report
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
POLYCOM INC (
PLCM
): Free Stock Analysis Report
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