Extreme Optimism Boosts Stock

Shares in Extreme Networks Inc. (Nasdaq: EXTR) rallied today after CEO Gordon Stitt predicted better times were just around the corner. Extreme was reporting its quarterly results, which were marked by heavy losses.

Stitt said that the company's losses would end soon, forecasting a return to profit by the end of the company's fiscal 2004 (see Extreme Losses Dwarf Revenues), which just started with the current quarter. What’s more, Stitt pinpointed an aggressive revenue target of $400 million for the coming year. But he did not give any short-term guidance, except to say the company won't be profitable in its next quarter.

Wall Street cheered the news, sending Extreme's shares up $1.03 (22.08%) to $5.70 at midday.

Extreme posted a net loss of $170.4 million, or $1.47 a share, for the fiscal fourth quarter, which ended June 29. About $1.33 per share was attributed to a tax charge. For the full fiscal year 2003, the company reported a loss of $197.2 million, or $1.71 a share. In fiscal year 2002, the company reported a loss of $184 million, or $1.63 a share.

Revenues grew slightly in the quarter. The company reported $87.3 million in revenue in the fourth fiscal quarter, compared to $85.2 million in the third (see Extreme: Light Quarter, Denser Products ). A year ago, the company reported $113.1 million in the comparable period.

The focus of questions on the conference call was clearly on the forecast for future growth, rather than current results. Stitt attributed the forecast for revenue growth to a series of new product introductions -- including the rollout of its new ASIC technology along with its new 10-Gbit/s Ethernet platform, integrated wireless switch, and low-end Ethernet switch. He also expects increased demand for Layer 3 switching.

Stitt says he also sees an improvement coming from U.S. and Japanese enterprises. Enterprise sales made up about 85 percent of the company’s revenue in the quarter.

“We didn’t pull this figure out of the air,” Stitt said. “We did a rigorous, bottoms-up, analysis and looked at sales commitments and what was in the pipeline. We also looked at the performance of the new products and went through an extensive planning exercise.”

But analysts are less confident. On the call, several of them asked Stitt to clarify and restate why he would give such an optimistic long-term guidance and no short-term view.

"I just wanted to give you guys some work to do," said Stitt. "Seriously, we have certainly implied short-term results, and I want to be clear on this call what our goals and objectives are.”

One analyst, Mark Sue of CE Unterberg Towbin, is not sure that Extreme can reach these goals.

“Considering the current environment, this might be overly aggressive,” he says. “It will take a significant ramp in revenues to achieve this goal.”

Sue agrees that there is pent-up demand for Extreme’s new products, and he expects the company to benefit from the current product cycle. But he maintains his yearly revenue estimate of $378 million.

With Extreme's stock price roaring ahead, it's clear that Extreme's shareholders were ready to hear some good news after a particularly bleak few quarters. The company's share price has been underperforming that of competitors such as Foundry Networks Inc. (Nasdaq: FDRY) and Cisco Systems Inc. (Nasdaq: CSCO).

In fact, looking at profit margins, Extreme would appear to be coming under pressure from its big rivals. Extreme’s margins fell this quarter to 37.5 percent. This compares to about 59 percent from Foundry and 71 percent from Cisco.

Stitt said he expects margins to improve a few percentage points. And he pointed out that the company has taken several measures to improve margins and overall earnings by cutting costs. Stitt also said the company has improved supply chain management and has instituted temporary pay cuts for himself and some of the other top executives.

— Marguerite Reardon, Senior Editor, Light Reading

Iipoed 12/4/2012 | 11:44:32 PM
re: Extreme Optimism Boosts Stock They lose 170 million 03 fiscal year. have not be profitable in many quarters, their CFO quits. They have no senior sales people left. Their new product announcements usually miss their first announced shipment dates by at least 6 months. But they have Gordon Sitt, the howard stern of technology marketing.
Help me out here their stock jumps 22% based upon the above. What am I missing?
Poor Foundry will announce their 15th or 16th straight quarter of profitability next week, 25% higher margins than Extreme, much wider product scope. But guess what Bobby Johnson is no marketing guru, just a plain engineer.

Based upon Extreme's logic of continually losing $, employees bailing, margins in the low 30% range their stock jumps.

Might be a good time to short FDRY if this is reality. IMHO
whyiswhy 12/4/2012 | 11:44:26 PM
re: Extreme Optimism Boosts Stock http://www.lightreading.com/bo...

wilecoyote 12/4/2012 | 11:44:22 PM
re: Extreme Optimism Boosts Stock What's the latest with their WiFi and 10GigE programs? How could they fund them with cash running low?
BobbyMax 12/4/2012 | 11:43:59 PM
re: Extreme Optimism Boosts Stock There is nothing in the announcement that would boost up the proce even by a penny. A lot of con artists on Wall Street have been expressing optimism. There are no fundamental changes that bring any kind of orderly growth. Extremes initial strong association with Yipes had distrous consequences.

The days of boosting up stock prices by expressing optimism are over. There is a tremendous amount stress on economy due to the US waging a war on Iraq and Afghanistan. The war expenses are close $12 Billion a day.
gea 12/4/2012 | 11:43:59 PM
re: Extreme Optimism Boosts Stock BobbyMax:

All your base are belong to us.
Iipoed 12/4/2012 | 11:43:58 PM
re: Extreme Optimism Boosts Stock "GEA"BobbyMax posts an intelligent post and you shoot it down with your silly standard response. Get a life, I am another one that reads these boards reguarly and really sees your posts as very trivial and useless. Why do you bother?
Interestingly, even though BM gets burned from time to time on this board I cannot recall him ever using his posts to belittle anyone.

gea 12/4/2012 | 11:43:57 PM
re: Extreme Optimism Boosts Stock Lipoed wrote...

"even though BM gets burned from time to time on this board I cannot recall him ever using his posts to belittle anyone."

Then you haven't been reading Booby's posts, which is understandable. I don't read them either. But looking at just today's, here's Booby slandering Chambers...

"Chambers only appoints "yes" people to his management team. So the question of fairness and honesty has the least priority at Cisco.
Through a series of mergers and acqusitions, Chambers manipulated the stock prices"

No references, no facts, no data. Just slander and libel, and he never defends statements like this. Remember than even though Chambers is a rich bigshot, he's human too. So it is vital to actually PROVE such accusations.
Iipoed 12/4/2012 | 11:43:57 PM
re: Extreme Optimism Boosts Stock Should have made it clearer. BM does not take shots at the other posters on this board that I am aware of. Shows at least that he is somewhat above that type of nonsense.
As to chambers, BM is right on the money.
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