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Polycom Inc. (PLCM - Analyst Report), a leading global unified collaborative solutions provider, recently reported disappointing preliminary financial results for its first quarter of 2012. The company reported that total revenue will be within the range of $364 million - $370 million. Its mid-point of $367 million is well below the current Zacks Consensus Estimates of $384 million.
Quarter GAAP EPS will be around 7 cents – 9 cents per share. Non-GAAP EPS (including share based compensation expenses) will be 13 cents – 15 cents per share. Its mid-point of 14 cents per share barely meets the current Zacks Consensus Estimate.
Management cited continuation of sales execution problem in the North American region and sales fluctuations in the Asia-Pacific region are the primary reason for these poor performance. Just a week ago, we downgrade our recommendation on Polycom to Neutral from Outperform, backed by our assessment that the global unified collaborative solutions market is becoming immensely competitive day by day and Polycom may yet to fix its sales execution problems in the North American region. Currently, Polycom holds a Zacks #3 Rank (Hold) on the stock.
At present, major concern for Polycom is its lukewarm performance in the most important North American regions. The company is significantly suffering in this region in the last couple of quarters, mainly due to poor execution problems of marketing and sales.
Management has done several restructurings, which are yet to generate fruitful results. The problem seems to be double-edged (1) growing competitive pressure (2) precipitous macro-economic fluctuations, resulting in volatile tech spending.
The uniform collaborative communications market is fiercely competitive, resulting in a cut-throat pricing strategy. Cisco Systems Inc. (CSCO - Analyst Report) became the main competitor of Polycom after it purchased Tandberg TV of Norway. Cisco itself is a developer of high-end videoconferencing solutions, mainly comprising custom-designed digital boardrooms for executives and boards to hold global meetings. Cisco has acquired privately-held BNI Video, a video back-office and content-delivery network analytics company, further enhancing its videoconferencing portfolio.
Besides Cisco, smaller firms are also flexing their muscles. Logitech International S.A. (LOGI - Analyst Report) purchased privately held LifeSize Communications, a developer of high-end high-definition videoconferencing gear. Logitech also acquired Italian firm Mirial, a leading videoconferencing solution provider offering video-calling on tablets and other mobile handhelds.
Furthermore, Microsoft Corp. (MSFT - Analyst Report) has acquired Skype, a leading developer of free video-calling software for PCs and other digital devices. The acquisition of Skype will enable Microsoft to offer videoconferencing from desktop computers.