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Ethernet equipment

Extreme Miss

Extreme Networks Inc. (Nasdaq: EXTR) stock fell nearly 10 percent today after the company reported a surprise quarterly drop in revenues.

"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

valleyguy 12/5/2012 | 4:08:10 AM
re: Extreme Miss My take on Extreme is pretty simple: Gordon Stitt is in over his head. This company has done:

Nothing in WLAN, a natural
Nothing in load balancing or WAFS or any of the hot growth spots
Nothing to differentiate against Foundry or Cisco or Hauwei or Force10 or anyone else in areas like security
Tons of management turnover, tons of turnover in the rank and file

And has been flat for what, four straight years?

Are they freakin' asleep over there? What do they do all day? It pisses me off to see companies managed poorly, year after year, like Nortel and Lucent, always missing, always bleeding cash. The Boards should be taken to the woodshed for such incompetence. Where are the class action lawsuits?

At the very least, a $400M company should be one where the CEO knows what's going on. A CEO should never say on a conference call "it could be this or it could be that." Chambers never did, and you can be sure that Kriens and even BJ know exactly what's going on when they have a shortfall somewhere.

My 2cents.
VG aka Vince Young
aka watch me get sued now for slandering (what a joke)
materialgirl 12/5/2012 | 4:08:04 AM
re: Extreme Miss EXTR management may be clueless, but enterprise sales at JNPR were not that great either. Maybe those channel checks are wrong, and that inverted yield curve is already hurting u.s. corporate demand. OR, maybe they need more sophisticated networks for SOA, VoIP and all, and are sitting around a table meditating about how to get there.
HeavyDuty 12/5/2012 | 4:08:01 AM
re: Extreme Miss "maybe they need more sophisticated networks..."

They're a profitable company with a self-limiting, sell less frills for much less than Cisco charges, business plan. If people are buying this stock because they want improved growth and/or better and better margins, they're in for the wrong reason. This will be a long term value, or a bust and very little otherwise.
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