Sci-Atlanta Dips on a Blue Q2

Craig Matsumoto
News Analysis
Craig Matsumoto, Editor-in-Chief, Light Reading
1/19/2006



Weaker than expected sales drove Scientific-Atlanta Inc. share price down all day long, and even more after hours, on Thursday.

After falling 8 cents during the day, Scientific-Atlanta shares dropped another 17 cents (0.4%) to $42.95 in today's early after-hours trading.

Cisco Systems Inc. (Nasdaq: CSCO) is buying the company for $43 a share, and that deal is on the verge of closing, once it clears regulatory hurdles outside the United States. (See Cisco to Acquire Scientific-Atlanta and Cisco Waiting Period Expires.)

Scientific-Atlanta shares have hovered at just above $43 per share since Dec. 13, trading as high as $43.90. That suggests investors are waiting for a higher bid. Scientific-Atlanta denies it turned down any other bids before accepting Cisco's offer, but rumors persist that other parties might be willing to pay a higher price -- the catch being that they wouldn't pay in cash, as Cisco is planning to do. (See Scientific-Atlanta: Cisco's Sweet Deal?)

Today's earnings call, probably the last one before Scientific-Atlanta gets acquired, was a disappointment in that Sci-Atlanta missed analysts' revenue expectations for the quarter by a full $16 million.

For its second quarter, which ended Dec. 30, Scientific-Atlanta reported net income of $53.4 million, or 34 cents per share, on revenues of $495 million, compared with first-quarter net income of $60.7 million, or 39 cents per share, on revenues of $490 million. (See Scientific-Atlanta Reports Q2.)

The company's non-GAAP net income was 44 cents per share, beating analyst estimates by a penny, according to Thomson Financial. But analysts had expected revenues of $511 million.

For its second quarter last year, Scientific-Atlanta reported net income of $58.7 million, or 38 cents per share, on revenues of $442 million.

Chairman and CEO Jim McDonald delivered a goodbye message of sorts on today's conference call with analysts, tracing Scientific-Atlanta's history as far back as the 1960s space program.

But today's numbers brought him back down to Earth -- and the executive quickly pointed the conversation toward Cisco's pending acquisition. Speaking of broadband networking and other markets, McDonald said, "We need greater scope and resources to capture the opportunity."

— Craig Matsumoto, Senior Editor, Light Reading

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