Earnings reports

Net.com Shows Upside Surprise

Here's the stock surprise of the day. In the bleakest earnings season yet for telecom gear, Network Equipment Technologies Inc. (net.com) (NYSE: NWK) reported its fourth consecutive quarter of revenue growth last night (see Net.com Has 4th Quarter of Growth). Shares popped $0.48 (14.41%) to $3.81 on the news.

Granted, the growth was modest: Revenues of $27.2 million were up 1.9 percent sequentially. Also, net loss rose to $0.40 per share, as opposed to $0.09 per share last quarter, thanks to charges of $9.6 million related in part to changes in accounting and to a goodwill writedown from the company's purchase of Ethernet switch company Flowwise in 2000.

Still, net.com has plenty of cash -- $95.3 million to be exact. And with product revenue of $22 million -- representing an increase of 34.7 percent from the same time last year -- the company can put a better spin on things than most others can."We had a stunning quarter in what are extremely difficult times for our industry," said CEO Bert Whyte on last night's conference call with analysts.

What's the secret? The company has a firm toehold in the federal government market for frame relay and ATM gear. This appears to be yielding sufficient rewards in the prolonged telecom slump.

Net.com says more than 50 percent of its revenues (about $14 million to $15 million per quarter) come from ongoing sales of Promina multiservice gear -- the latest iteration of the company's high-end WAN CPE switching equipment it's been selling for nearly a decade.

"They got these contracts as the installed vendor in many government agencies for T1 multiplexers years ago," says Erin Dunne, director of research at Vertical Systems Group. "That led to a natural progression to ATM and frame relay platform sales. And the federal government hasn't slowed its spending the way enterprise customers and carriers have."

The key question is, Can the company keep it up? And there's no pat answer. Whyte and other execs expect growth to be flat for the next few quarters, with improvement starting to show in the overall industry by the first or second quarter of calendar 2003. Meanwhile, the company is setting its sights not on the legacy market but on what it sees as demand for service creation gear, boxes that help carriers create new services they can resell as VPNs (virtual private networks).

Net.com's Scream and Shout service creation platforms are in trials worldwide, execs say, and revenues from them are still less than 10 percent of sales.

"Service creation is a tough market. It requires capital expenditure by carriers on marketing, technical support, and new equipment," says Dunne. And right now, no one's buying.

Still, if Whyte is right and the market starts to return soon, net.com may find it has been able to hold out long enough to gain some momentum in its new market. It spent big on publicizing service creation at June's Supercomm tradeshow in Atlanta and establishing a forum with other vendors there (see Vendors Hold Service Creation Love-In).

Meanwhile, the competition is struggling, which may also gain net.com some time: CoSine Communications Inc. (Nasdaq: COSN) is trading for pennies (although its shares were up more than 5 percent today); Nortel Networks Corp. (NYSE/Toronto: NT) and Redback Networks Inc. (Nasdaq: RBAK) are struggling; and Unisphere Networks Inc. is facing a major integration with Juniper Networks Inc. (Nasdaq: JNPR) (see What to Expect From 'Junisphere').

Financial analysts see hope in the big picture. "In my view, net.com is a stable government play with an option," says Joanna Makris of Adams Harkness & Hill. "While Redback and CoSine hang on, hoping to eventually see their market take shape, this company's got cash and a great balance sheet. It's a great position to be in."

— Mary Jander, Senior Editor, Light Reading
let-there-be-light 12/4/2012 | 10:04:01 PM
re: Net.com Shows Upside Surprise ivehadit,

The name net.com (very original) earns the company at least one minute of fame. I don't know where the other four minutes are coming from
ivehadit 12/4/2012 | 10:04:01 PM
re: Net.com Shows Upside Surprise 27m in revs, mostly from government, a 100M in cash, an ATM company with heritage in t1 muxes. does net.com deserve this 5 mins of fame?

mary, is nothing else happening in optical?
deer_in_the_light 12/4/2012 | 10:03:59 PM
re: Net.com Shows Upside Surprise Oh God, if selling T1 Muxes is getting sexy these days, I really have to get another job.
I am working on 10/40G LH optical gear and this is electrical 56K

Lots'O'Cabbage 12/4/2012 | 10:03:58 PM
re: Net.com Shows Upside Surprise You do need another job!!

Say what you want this is a great company!!!

Good luck on selling Optical in this market!!
BobbyMax 12/4/2012 | 10:03:52 PM
re: Net.com Shows Upside Surprise As I recall NET was involved in lot of questionable business practices. The company focused on diffent things that were not relevant at to the business of NET.This includes making network management software in which it had no expertise.

It is the same company that used to ship bricks to warehouses and misreported earnings.

Any extra cash NET claims must have come by laying off workers and making things that may be not acceptible customers. The Federal government has no procurement policies, so anybody can sell to the Federal Government. What it really means that Federal Government cannot attest to the proper function of any product.
Ringed? 12/4/2012 | 10:03:52 PM
re: Net.com Shows Upside Surprise Lots to be said for a $22 million quarter these days especially from the the garbage heap of companies out now.

N.E.T, (Network Equipment Technologies)was and is a wonderful company. Let's see net.com. Oh, that's right that is their domain name, back in the day when N.E.T owned a class B subnet,very orginial, granted the timing of the official name change was aweful. I wonder if the domain name net.com is still worth anything today?

N.E.T built the priemere T1 mux on the market. Its control plane was remarkable for the time. Dijkstras algorithm ran along with SPF (shortest path first)to create a topology database in a meshed/partial network. Hmmm. A- Z provisioning was never a problem and switch overs happened so fast both at the circuit level and TSI level that voice even compressed at 16K didn't take a hit and most of the time data didn't either.

N.E.T, one of the four founders of the ATM Forum, had a ATM switch out in 1991. Pitty the advances in WAN interfacesh (UTOPIA) hadn't taken off yet.
Management and bad product direction decisions ruined this company.

N.E.T, one if not the only vendor on the planet with lifetime rights to Cisco source code. That's right, N.E.T had both a stand alone box and a integrated Cisco Router (LWX) on a blade in the IDNX T1 mux shelf. Too bad it supported RIP, DecNet, Vines, Token Ring, STUN encapsulation for SDLC traffic, Novell,OSPF and probably a few more I have forgotten about. BTW, Cisco learned early that if you keep someone who you licensed SW to, two rev's back it will be hard for them to compete. :)

This was circa 1989 and N.E.T pumped a lot of cash into Cisco and even considered buying the little maker of AGS routers. The AGS + was still a ways off, but the white and orange boxes stood out and even then the mechanical engineering was
something to behold. ;)

Of course, a buy out didn't happen but I'll tell you what did happen. N.E.T introduced a few black ops folks from the defense sector to the young Cisco and that early revenue was a wonderful initial infussion of cash to the young startup.

And one last thing. If you trace the success of Silcon Valley equipment vendors back to their roots you will find one hell of a lot of people from N.E.T. But becareful. Some are retired.

wilecoyote 12/4/2012 | 10:03:51 PM
re: Net.com Shows Upside Surprise NET's history is this:

Stupid people on the board. I mean monumentally stupid.

Had source code for IOS and did NOTHING with it. Could have aquired CSCO for a song in the early days..

Ditched AATM programs right when ATM started a comeback.

They change their name to dot com. Need i say more?

Now they want to be an edge router company. This one's too easy. What a joke.
netskeptic 12/4/2012 | 10:03:51 PM
re: Net.com Shows Upside Surprise > NET's history is this:
> Stupid people on the board. I mean monumentally
> stupid.
> Had source code for IOS and did NOTHING with
> it.

I suppose that they had no idea what to do with it, so it seems like doing NOTHING was a right thing to do.

> Could have aquired CSCO for a song in the early
> days..

Apparently, they were not able to run their own business well enough, so once they bought CSCO they would killed it with a probability of 100%.
So, saving some money by not buying it was a right decision too.

> Ditched AATM programs right when ATM started a > comeback.

> They change their name to dot com. Need i say
> more?

> Now they want to be an edge router company.
> This one's too easy. What a joke.


Ringed? 12/4/2012 | 10:03:46 PM
re: Net.com Shows Upside Surprise Wow! A couple of Light Dragoon's and a Lancer on this post! I would have expected a little better commentary.

The incident BobbyMax speaks of is true but it only happened once in 91' and the share holders sued N.E.T for 15 million. Basically N.E.T paid commissions to a guy who was warehousing equipment. Bad eggs are everywhere.

BobbyMax is completely off base wrt selling to the Federal Government. Not only does the Gov have a very rigid process for procurement but getting your product tested through DISA labs and field trial is both time consuming and maddening.
Hey Bobby. They (Govt Workers)may not make much money and don't dress very well but you do have some smart (TDM) folks that work telecom in the Federal Govt. Granted thats not the lion share.

As far as being an edge routing company I tend to agree with Wilecoyote. That is a rough market and the take on Shout IP is international and not Federal Government.

What is staggering and the point of Mary's story is that N.E.T posted a $22 million quarter selling a TDM shelf that only has 32Mbp/s a capacity.

War is the biggest business going. And when you need to drop T-1 and low speed data encrypted service, to troops that are deployed in a forward area you need a box that can with stand a blast, lay on its side and still keep working. N.E.T
has that box and it has/is used extensively by all of DoD.

Selling to the Govt is easy. Not. But it is a great revenue stream when you can get it.
Lots'O'Cabbage 12/4/2012 | 10:00:21 PM
re: Net.com Shows Upside Surprise Still cranking after all these years.

Keep your diary open, there is more to positive stuff to write.

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