Extreme Keeps a Stiff Upper Lip
Despite the fact that the quarterly results represent a step back for Extreme -- the company reported pro forma results of $145 million and profit of $8 million in its last quarter -- company executives remained optimistic about turning a profit for 2001 and said they have yet to see any evidence of increased pricing pressure due to inventory gluts in the networking industry.
The $112 million in revenues represents a 67 percent increase over last year's third quarter but a sequential decrease of 23 percent over the second-quarter results. Company executives said that in order to return to profitability, Extreme continues to cut costs, including restructuring the company and laying off roughly 6 percent of the staff. The company took a $40 million charge for inventory write-down and an additional $5 million in charges for restructuring during the third quarter.
"We are taking the necessary steps to manage this downturn and will be well positioned when the economy recovers," said Extreme CEO Gordon Stitt.
Despite cutbacks, company executives remained optimistic about the remainder of the year, sticking to revenue estimates of $460 million or better for the calendar year of 2001, which would represent 20 percent growth over 2000 levels.
"Right now, bookings for the month of April are comfortably exceeding what we saw in January," said Vito Palermo, vice president and chief financial officer.
Today, Extreme stock rose 3.73 (20.70%) to 21.75 in a broad rally fueled by the Federal Reserve rate cut (see Rate Cut Supercharges LR Index). In after-hours trading on the Island ECN, Extreme shares were trading at 22.80, up 1.05 from Wednesday's closing levels.
Extreme executives appeared to surprise some analysts on the call by saying that First Call consensus analyst estimates of a loss of 10 cents per share for fiscal 2001 were "low" -- i.e., rather than losing that much money the company forsees a quick return to profitability.
"For the year, we should be profitable," said Palermo.
Analysts questioned Extreme executives about the potential of increased pricing pressure, especially in light of Cisco Systems Inc.'s (Nasdaq: CSCO) recent announcement that it will write off $2.5 billion in inventory, indicating there is a large glut of networking equipment on the market (see Cisco's Inventory Woes Mount). But Stitt downplayed such fear.
"Cisco has already been a very tough competitor in this marketplace; they are always very aggressive price-wise," said the CEO. "I didn't read anything in their comments that indicated change. They've always been a very tough competitor and they've used price to their advantage."
-- R. Scott Raynovich, Executive Editor, Light Reading http://www.lightreading.com