Extreme Narrows Losses

Extreme Networks Inc. (Nasdaq: EXTR) reported a narrower loss and an increase in revenue in its third fiscal quarter.

The company also gave hints that things could further improve in 2004. It said revenues would be "flat to up 5 percent sequentially" in the fourth fiscal quarter of 2004 (the second calendar quarter).

The news was initally well received by investors. In after-hours trading, Extreme shares were up $0.69 (9.25%) to $8.15. In regular trading today, shares rose $0.12 (1.63%) to $7.46.

Extreme reported net revenue of $88.9 million in its third fiscal quarter, up 7 percent sequentially from $83.4 million in the second quarter and up from $85.2 million in the year-ago period. The company reported a GAAP net loss of $1.1 million or $0.01 per share for the third quarter. This was in improvement over the $5.6 million in the second quarter and a $7.1 million loss in the third quarter of fiscal 2003.

CEO Gordon Stitt was relatively upbeat on the call. "This was a respectable quarter for us and we were pleased with the results," he said. "We are seeing signs of a gradually improving economy... I believe as we see the economy pick up we will see an increase in IT spending."

Stitt pointed to in increase in gross margins. He also pointed out that the book-to-bill ratio was 1 and that cash flow was positive. The company reported a gross margin of 51.2 percent, up 3 points from the prior quarter.

Exteme executives pointed to several things in the pipeline that could boost revenues in 2004.

First of all, it's got a new reseller deal with Avaya Inc. (NYSE: AV), struck last fall, which could help it market its products into large enterprises.

"We continue to expect moderate revenue from Avaya," said Stitt.

Stitt also pointed to the company's new lines of products, including its Altitude 300 wireless switch and BlackDiamond 10K 10-Gig Ethernet switch. The company has has been integrating 802.11 wireless technology into its own switching line and has also added RF management features.

"Our approach [to the wireless market] is more strategic than the overlay approaches in the industry," said Stitt.

Analysts on the call asked about a rise in receivables and DSO (days sales outstanding). Extreme CFO Bill Slakey said these were attributed to an increase in revenue, some changes to payment terms, and an increase in reseller business.

Extreme also announced today that Chris Todd, senior vice president of worldwide sales, has resigned.

Stitt described the resignation as "a personal decision."

— R. Scott Raynovich, US Editor, Light Reading

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