Networking Equipment Roundup: Polycom, F5, Nortel, Foundry, Alcatel

I have written extensively on Cisco and other networking players as part of the Online Video Beneficiaries Series and hinted at consolidation among the smaller networking players to take it on. Earlier this month, I reviewed Cisco and competition from 3Com and Juniper. Let us now look at the other networking players.

On April 16, Polycom, Inc. (NASDAQ: PLCM) reported its first quarter results. Earlier coverage is available here and here.

Revenue was $258.9 million, up 34% y-o-y and down 2% q-o-q with SpectraLink chipping in $39.4 million. GAAP net income was $14.2 million, or 16 cents per diluted share, compared to $10.2 million, or 11 cents per diluted share in Q1 2007.

Product-wise, video solutions revenue accounting for 62% revenue was $159.5 million, up 17% y-o-y and down 3% q-o-q. Of this, video communications revenue grew 20.6% y-o-y to $130.3 million led by 58% sequential growth in the RPX telepresence line. Network Systems revenue was $29.2 million, up 2% y-o-y and down 18% q-o-q.

Voice communications accounting for 38% revenue was up 77% and 1% q-o-q. SpectraLink grew 6% q-o-q and 41% y-o-y.

Region-wise, North America revenues were grew 33% y-o-y and declined 2% q-o-q with the sequential decline mainly due to economic softness in the US. International sales accounted for 47% of its revenue with Europe accounting for 27%, Asia 17% and Latin America 3%. Revenue from Europe grew 46% y-o-y and 6% q-o-q, Asia grew 26% y-o-y but was down 9% q-o-q, and Latin America was up 19% y-o-y but down 10% q-o-q.

During Q1, Polycom purchased its common stock worth $60 million and it recently authorized another $300 million for stock repurchase. For the second quarter, Polycom expects revenues to grow by 2 to 3% sequentially. It is currently trading around $24 with a market cap of around $2 billion. It hit a 52-week low of $19.47 on March 17.

I would say, Polycom is a great long term buy opportunity right now. Over time, Video Conferencing has huge prospects in an increasingly globalized world. For details on Polycom’s long term strategy, please refer to my interview with CEO Bob Hagerty.

On April 24, Foundry Networks (NASDAQ: FDRY) reported its Q1 results. Earlier coverage here. Revenue grew 10.5% y-o-y but was down 11% q-o-q to $150.1 million. Net income was $13.9 million ($0.09 diluted EPS), up from $9.1 million ($0.06 diluted EPS) in Q1 2007 but down from $28.9 million ($0.18 diluted EPS) in the previous quarter. Non GAAP net income was $23.0 million ($0.15 diluted EPS). Analyst estimates were earnings of $0.15 on revenue of $150.5 million.

During the quarter, Foundry bought back 4.4 million shares worth $60.0 million. And with the recent authorization of another $100 million, it is left with $157 million for stock repurchases.

Region-wise, North America revenues were affected modestly as expected with customers delaying purchases and breaking up large projects into smaller orders to be deployed over several quarters. However, there was unanticipated weakness in Europe, Japan, and Asia. International revenue was 27.2% this quarter compared to 32.9% in Q4.

Its service provider business accounted for 29% of revenue and was up 53% y-o-y and about the same as Q4 ’07. Within this segment, routers grew to 20.8% of total revenue, up slightly from Q4. As per various research groups, it has gained market share in the carrier Ethernet switching and routing markets.

Foundry is currently trading around $13 with a market cap of around $2 billion. It hit a 52-week low of $10.74 on March 17.

On April 23, F5 Networks, Inc. (NASDAQ: FFIV) announced its results for second quarter. Earlier coverage available here. Revenue was $159.1 million, up 25% y-o-y and 3% q-o-q. GAAP net income was $17.7 million ($0.21 diluted EPS), compared to $20.0 million ($0.24 per diluted share) in Q2 2007 and about the same as $17.8 million ($0.21 diluted EPS) in the last quarter. Non-GAAP net income was $28.9 million ($0.35 diluted EPS). Both earnings and revenue topped the analyst estimates of earnings of $0.21 per share in revenue of $156.2 million.

Its core application delivery networking business accounting for 90% of revenue grew 19% y-o-y to 143.6 million. ARX storage virtualization products brought in $8.1 million or 5% of total revenue. Revenue from FirePass was $7.5 million. Demand for its new chassis-based application delivery controller, VIPRION is building up and it promises to be a key driver of revenue.

Region-wise, Japan revenue, accounting for just 10% revenue, was unexpectedly down $0.5 million from Q1 in a typically strong quarter. Americas especially US Federal and Telco also had a slow quarter accounting for 55% of revenue. APAC, accounting for 13% revenue grew 23% q-o-q while EMEA, accounting for 23%, also had a strong quarter with a sequential growth of 9%.

During the quarter, it bought back shares for $100 million and was left with $450 million cash. For the third quarter, F5 expects revenue between $160 million and $162 million with GAAP earnings in the range of $0.21 to $0.22 per diluted share.

F5 is currently trading around $28 with a market cap of around $2 billion. It hit a 52-week low of $17.7 on April 8.

On April 30, Alcatel-Lucent (Euronext Paris and NYSE: ALU) reported its first quarter results and its fifth consecutive loss of €181 million ($283 million or 7 cents per share), compared with a loss of €8 million (12 cents per share) in Q1 2007. Earlier coverage is available here. Revenue was € 3.864 billion, down 0.5% y-o-y and 26.2% q-o-q. At constant currency, revenue grew 6.3% y-o-y and declined 23.2% q-o-q. Analysts had expected loss of 2 cents on sales of €4.04 billion.

Segment-wise, Carrier revenues were €2.700 billion, down 4.9% and up 1.7% at constant rate. Services revenue was €0.679 billion, up 8.3% or 14.6% at constant rate. Enterprise revenue was €0.382 billion, up 3% or 8.4% at constant rate.

Though the company has credited low spending by key customers and weakness in the US dollar for its loss, its merger with Lucent is seen by most analysts as the main culprit. The three-year plan of integration is on track as per the company but in the tough scenario of the weak economy, the merger seems to be having a tougher time.

For 2008, it expects its revenue to be down in the low to mid-single digit range. For Q2, it expects revenues to increase in the mid single-digit range sequentially. It is currently trading around $7 with a market cap of around $16 billion. It hit a 52-week low of $5.08 on March 17.

Another company in the red is Nortel. On May 2, Nortel Networks Corporation (NYSE/TSX: NT) reported its Q1 results. Earlier coverage is available here.

Revenue was $2.76 billion, up 11% y-o-y mainly due to a release of deferred revenue in the LG-Nortel joint venture. Net loss was $138 million ($0.28 EPS), up from $103 million ($0.23 EPS) in Q1 2007 but significantly down from $844 million ($1.70 EPS) in Q4 2007 (mainly due to the $1.1 billion tax write-down last quarter ).

Segment-wise, Carrier Networks (CN) revenue increased 21% y-o-y and declined 10% sequentially to $1,218 million benefiting from the LG-Nortel JV deferred revenue, partially offset by a slight decline in CDMA and lower legacy switching sales.

Enterprise Solutions (ES) revenue was $641 million, up 7% y-o-y and down 16% sequentially driven by the shift towards unified communication but partially offset lower data networking sales in the North American and EMEA regions.

Global Services (GS) revenue was $516 million, up 15% y-o-y and down 15% sequentially driven by growth in implementation services primarily in the Asia region, partially offset by a decline in network support services. Metro Ethernet Networks (MEN) revenue was $327 million, down 12% y-o-y and 24% sequentially mainly due to decreases in optical and data revenue.

Check out this post on Tech Republic which looks at Nortel’s claim of taking away market share from Ciscoin the LAN market. In 2007, Cisco’s LAN revenues grew by 12% while HP ProCurve grew by 40%, Huawei by 32%, Foundry by 26%, Nortel by 18%, and Alcatel-Lucent by 17%. Nortel is currently trading around $8 with a market cap of around $3.8 billion. It hit a 52-week low of $5.73 on March 20.