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Video Conferencing’s Unrealized Potential

Posted on Monday, Dec 10th 2007

I recently did an interview with Bob Hagerty, CEO of Polycom, which I strongly suggest you read. My earlier post on the company as one of the online video beneficiaries is available here.

Here’s an update on its earnings for Q3 2007 and some analysis of the stock.

For Q3, Polycom, Inc. (NASDAQ: PLCM) recorded revenues were $240 million, up 3% sequentially and 39% y-o-y. Excluding SpectraLink revenues of $37.8 million, Polycom had a growth of 17% y-o-y. Gross margin was 60.2% and GAAP net income was $19.8 million or $0.21 per diluted share in Q3 of 2007 (up 15.6% y-o-y). It bought $50 million of its stock and has $190 million remaining in its share repurchase funds.

Video solutions revenue was $146.4 million (Video Communications $113.7 million and network systems $32.6 million), up 1% sequentially and 19% y-o-y. Voice Communications business also returned to sequential growth with revenue of $93.7 million, up 5% sequentially 88% y-o-y.

Polycom is focusing on scaling its global sales and marketing efforts. It recently appointed Heidi Melin as its Chief Marketing Officer. Heidi was the Chief Marketing Executive at Hyperion and earlier at PeopleSoft. Bob discussed at length the challenges of growing the company at a fast pace, and in multiple countries.

Apart from its partnerships with Avaya, Nortel, Alcatel-Lucent, Cisco, and AT&T, Polycom has added Microsoft, 3COM, IBM, and Easynet to its list of strategic partners. With Microsoft, it is launching Microsoft® Office Communications Server 2007 voice products. It is adding media conferencing to IBM Lotus Sametime and Lotus Notes for an on-demand desktop collaboration solution. Other exciting products are its new HDX4000™ executive desktop product, the HDX8000™ and HDX9000™ series, and the RMX media server network platform.

Its stock is trading around $25 after hitting a 52-week low of $22.81 on December 4. I would say, Polycom is, at the moment, an excellent buying opportunity. The market for Video Conferencing is in its infancy, and is expected to grow rapidly over the next decade. Video Conferencing not only cuts down the need for travel in an increasingly globalizing world, it makes people vastly more productive. I am, personally, a big believer in Video Conferencing, especially when faced with the situation that you have to cross the Atlantic for just one meeting in Paris. It is inefficient, exhausting, and definitely not green.

World business needs to standardize on video conferencing as part of the business protocol, and when it does, Polycom will be a very strong beneficiary.

Polycom, Inc. (PLCM)

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I’m not convinced that teleconferences or videoconferences seriously promote a more efficient workplace. They certainly help by cutting the commuting costs. But the change is not dramatic, ie. it’s not an order of magnitude more efficient.

mark Saturday, January 5, 2008 at 3:40 AM PT

Mark,

Have you ever run international operations?

Sramana

Sramana Mitra Saturday, January 5, 2008 at 11:42 AM PT