Net.com Triples Profits

Network Equipment Technologies Inc. (net.com) (NYSE: NWK) shows there's telecom recovery out there somewhere. With its earnings report last night, it's increased revenues for eight consecutive quarters and posted a profit for the second quarter in a row (see Net.com Keeps Growing in Q1).

Revenues for net.com's first fiscal quarter 2004 were $34.1 million, up from $33.8 million last quarter (see Net.com Turns Corner to Profits). Net income was $1.6 million, or $0.07 per share, up from $537,000 last quarter, or $0.02 per share. Wall Street analyst consensus was for a loss of $0.03, according to First Call.

Net.com closed the quarter with $98.8 million in cash, up from $94.6 million last quarter.

Despite these gains, the firm shared Wall Street's punishment of tech stocks today: Its shares were trading at $8.71 early this afternoon, down $1.16 (11.75%).

Still, net.com doesn't look to be in the same foundering boat as some of its competitors. Redback Networks Inc. (Nasdaq: RBAK), whose products compete with net.com's SCREAM series of provisioning boxes, recently had a restructuring kerfuffle, followed by a weak earnings report (see Redback Investors Flee Restructuring and Redback Q2 Revs Keep Slipping). And just two days ago, Lucent Technologies Inc. (NYSE: LU), which competes with net.com in DSLAMs and multiservice switching, spoiled its longstanding promise of 2003 profitability (see Lucent Punts 2003 Profit Pledge).

One distinction for net.com is its support from government customers, which haven't pinched their wallets as tightly as telcos. According to net.com's SEC filings, in fiscal 2003, which ended for net.com on March 28, 2003, the company got 65 percent of revenues from government customers, compared with 50 percent in 2002 and 54 percent in 2001.

Among the vendor's clientele are the U.S. Department of Defense, NATO, the World Health Organization, and the British Ministry of Defense.

Many of these customers have bought the vendor's multiplexing gear for years. Indeed, about 80 percent of net.com's sales in 2003 were of Promina circuit-based switches, so-called legacy gear to many. That's down, however, from 87.1 percent of sales in 2002.

Net.com also has its eye on the international ball. Over a quarter of 2003 revenues came from selling Promina in regions such as China, Eastern Europe, and Latin America.

Clearly, there are weak spots in net.com's strategy. Net.com must improve sales of IP-based products like SCREAM as demand for its longstanding Promina WAN CPE starts to DWINDLE. Big government contracts could usher in new gear and new vendors to replace net.com's entrenchment in certain networks.

But the vendor's been plugging along for months. Indeed, this time last year, it also had good news, despite the tough economy (see Net.com Shows Upside Surprise). "We remain cautious about the near term, while optmistic about our long-term prospects," says CEO Bert Whyte in a prepared statement.

— Mary Jander, Senior Editor, Light Reading

BobbyMax 12/4/2012 | 11:44:49 PM
re: Net.com Triples Profits With a few companies posting a small profit, it is hard to say if Telecom would recover. Both the telecom equipment and service providers are in trouble. More mergers will take place, but this may not be enough for revovery.
atmguy 12/4/2012 | 11:44:37 PM
re: Net.com Triples Profits
50% of their revenue come from Federal Govt and another 20-30$ from pacific market. Federal Govt is a very good customer and once you get them, there is no competition. Good for them!
Sign In