In a story that's becoming a theme to this earnings season, Foundry Networks Inc. (Nasdaq: FDRY) reported a strong quarter but may have left investors wondering by not providing financial guidance (see Foundry Posts Q3 Results).

The company posted sequentially higher revenues and profits. It also increased gross margins and improved its cash position for the third quarter of 2003. Revenues for the third quarter increased to $101.7 million, compared to $95.7 million in the second quarter, a 6 percent increase (see Foundry Q2 Revenues Increase). The company had net income of $20.8 million, or $0.15 per diluted share in the third quarter, compared to net income of $16.8 million, or $0.13 per diluted share, in the prior quarter.

Foundry shares this morning traded down $0.28 (1.21%) to $22.78, as many technology shares were weak.

During the conference call held Wednesday night, CEO Bobby Johnson said Foundry's international business accounted for 35 percent of sales and domestic business 65 percent. Revenue from the U.S. Federal Government remained strong, once again representing about 30 percent of the company’s revenues during the quarter. Spending in Japan and Korea rebounded from the prior quarter's levels. European sales remained steady even through the seasonally slow summer months.

The company reported gross margins of 67 percent, the highest level ever, according to Johnson. Gross margins were 63.8 percent in the second quarter. Foundry added $44 million to its cash balance, increasing its total to more than $455 million in cash and investments. The company remains debt free.

Foundry continues to sell most of its gear to enterprise customers, which made up 80 percent of its revenues, versus 20 percent from service providers.

The company also saw income from several new products in its portfolio. Specifically, it recognized revenue for the first time from its third-generation 10-Gigabit Ethernet platform, the BigIron MG8 router. It looks to see revenues from the service provider version of the switch, the NetIron 40G, in the fourth quarter.

Mark Sue, an analyst with CE Unterberg Towbin, believes that Foundry has a strong offering in the 10-Gbit/s Ethernet market.

“With price points per port that make it attractive for broader adoption, we believe Foundry is likely to enjoy an early lead in the market for high performance 10Gig,” writes Sue in a preview investor note. “We highlight that the largest commercial 10Gig network today, Walter Reed Medical Center, is based on Foundry equipment.”

Sue also believes that the company is seeing strong demand for 1-Gbit/s Ethernet ports.

The company introduced new ServerIron products during the third quarter. And it announced its wireless LAN strategy, which will integrate wireless technology into its existing enterprise network infrastructure products.

While Foundry did not give guidance, it did indicate that its book-to-bill ratio is greater than one. This means that the company entered the fourth quarter with orders to fill, something that should give it a jumpstart on the quarter.

— Marguerite Reardon, Senior Editor, Light Reading