"Extreme missed what should have been a strong December quarter," wrote analyst Mark Sue of RBC Capital Markets in a note issued this morning.
For its second quarter, ended Jan. 1, Extreme reported profits of $5.7 million, or 5 cents per share, on revenues of $92.8 million, compared with profits of $4.4 million, or 3 cents per share, on revenues of $97.9 million the previous quarter. (See Extreme Reports Q2.)
For its second quarter a year ago, Extreme reported profits of $10 million, or 8 cents per share, on revenues of $100.3 million.
Revenues missed analyst expectations of $101.6 million as tallied by Thomson Financial . That brought Extreme's stock down 44 cents (9%) to $4.51 in trading early this morning.
Extreme further said third-quarter revenues would land in the range of $90 million to $95 million, again missing analysts' targets of more than $100 million.
What's to blame?
"Our challenges were mostly in the U.S. market, where some large deals we had anticipated were pushed out beyond quarter-end," said Gordon Stitt, Extreme's CEO, in yesterday's conference call with analysts. Extreme has hired more salespeople and added an executive to handle U.S. government business, Stitt said.
Analysts on the call seemed vexed by the shortfall, as Extreme seems to be having problems in one geographic region at a time. Last summer, it was Japan that was holding sales back. (See Extreme Reports Q3.)
"It is unclear to us exactly why Extreme experienced such a major shortfall in the seasonally strong North America enterprise market, given that our checks suggested North America performed satisfactory for the industry overall," wrote analyst John Mark Duncan of Pacific Growth Equities Inc. in a report issued this morning. "Therefore, we suspect Extreme is experiencing company specific issues that may not be corrected in short order."
It's clear that many Wall Street analysts got blind-sided by the quarter. In a note released just last week, Citigroup analyst Alex Henderson said he expected Extreme would have a strong quarter.
"We would not be altogether surprised, however, if the company exceeded our expectations given the strength of its end markets, according to our VAD/VAR survey, the growth of its Avaya relationship to date, and the favorable positioning of its feature rich product portfolio," wrote Henderson in a note released on January 17.
One part of the problem may be in the sales force, said Extreme's Stitt: "There certainly has been some turnover in sales force, and that affects results."
— Craig Matsumoto, Senior Editor, Light Reading