Extreme's Stock Screams

Extreme Networks (Nasdaq: EXTR), an enterprise switching player that's now marketing gigabit Ethernet products to telecom carriers, announced sequential revenue growth of 37 percent in its quarterly earnings report Wednesday night.

Investors had the opposite reaction to Extreme's quarter than they did to the report of its main competitor, Foundry Networks (Nasdaq: FDRY), whose shares plunged on Wednesday after Foundry reported 27 percent sequential revenue growth Tuesday night. Extreme's stock was up $16 (15 percent) to $132 in trading this morning, following its report last night.

In morning trading, Foundry stock fell another $3.38 (3.4 percent) to $94.75 after plunging 20 percent on Wednesday.

Extreme reported revenue of $92.4 million for the fourth quarter of fiscal 2000, a sequential increase of 37 percent over $67.3 million in the third quarter of fiscal 2000 and an increase of 143 percent over the $38.1 million reported in the fourth quarter of fiscal 1999.

Pro forma net income, excluding the effects of the amortization of goodwill and intangibles, was $5.0 million for the quarter, or $0.09 per share, compared with net income of $2.9 million or $0.05 per share in the fourth quarter of fiscal 1999.

Odds are, the reaction on Wall Street is largely based on the fact that Extreme's top-line growth shows the company grew faster than Foundry in the last quarter. For the first time, Extreme's quarterly revenues were higher than Foundry's -- with Extreme reporting $92 million in revenues against Foundry's $88.8 million. Foundry has long been valued more highly than Extreme. Foundry is now valued at $10 billion and Extreme at $7 billion, according to market capitalizations early Thursday.

Several outfits on Wall Street were playing such valuation arbitrage between Foundry and Extreme. For example, the Open Fund yesterday bought Extreme stock and sold Foundry stock short (a bet that the stock would go down) ahead of Extreme's report, based on the belief that Extreme is edging out Foundry in the market.

--R. Scott Raynovich, Executive Editor, Light Reading, (Light Reading)
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