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Polycom profit meets estimates, gives strong Q4 outlook

October 21, 2009 | Chris Payatagool

Thumbnail image for Polycom_RPX_400_550.jpg* Q3 adj. EPS $0.31 matches estimates

* Q3 rev beats estimates

* Q4 outlook stronger than expected (Adds details from conference call)

By S. John Tilak

BANGALORE, Oct 20 - Video conferencing company Polycom Inc posted a quarterly profit in line with market estimates, as increasing competition and softer margins overshadowed stronger-than-expected revenue, sending its shares down almost 5 percent.

However, the company gave a better-than-expected outlook for the fourth quarter.

For the fourth quarter, it forecast sequential revenue growth of 4 percent to 6 percent, which would be $252.7 million to $257.6 million. Analysts were looking for revenue of $247.6 million.

Polycom projected gross margins of 59.5 percent, an improvement from third-quarter gross margins of 58.8 percent.

"The (third quarter) earnings were light because of lower-than-expected operating margins," William Blair & Co analyst Jason Ader said.

While noting that the sequential revenue growth was a positive, Ader said performance at the video business was disappointing.

"I think they're losing market share to Tandberg," he said.

In the third quarter, revenue topped Wall Street expectations due to a sequential improvement in both the video and voice businesses.

The video segment contributed $165 million, or 68 percent, to revenue. Voice communications added $78 million, or 32 percent, to revenue, compared with $69 million in the second quarter.

"It looks like a recovery in the voice business," Morgan Keegan analyst Tavis McCourt said.

An improvement in the voice business indicates a recovery in technology spending as it is viewed as a discretionary expense.

Earlier this month, Cisco Systems signed a deal to buy Tandberg, Polycom's Norwegian rival, for $3 billion. In the wake of that deal, Polycom is considered an acquisition candidate.

 Investors have been looking to gauge the impact of the Cisco-Tandberg deal on Polycom.

Third-quarter net income fell to $13.7 million, or 16 cents a share, from $17.9 million, or 21 cents a share, a year earlier. Excluding items, the company earned 31 cents a share.

Revenue rose 5 percent to $243 million.

Analysts were looking for earnings of 31 cents a share, excluding exceptional items, on revenue of $236.4 million, according to Thomson Reuters I/B/E/S.

Polycom shares were down $1.17 at $25.20 in trading after the bell. They closed at $26.37 Tuesday on the Nasdaq.

[via Reuters]

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