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Polycom Misses 3Q Estimates

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Yesterday, after the market closed, Polycom Inc. (PLCM) declared its financial results for the third quarter of 2012, which was below the Zacks Consensus Estimates.

GAAP net loss in the third quarter of 2012 was $14.7 million or 8 cents per share compared with a GAAP net income of $19.6 million or 11 cents per share in the prior-year quarter. However, adjusted (excluding stock-based compensation items) loss per share in the reported quarter was 4 cents, and thus misses the Zacks Consensus Estimate by 3 cents.

Total revenue in the third quarter of 2012 was $335.4 million, up 5.6% year over year, and just above the Zacks Consensus Estimate of $331 million. Segment wise, UC Group Systems revenue was $225.8 million, down 8% year over year. UC Personal Devices revenue was $45.7 million, down 3% year over year. UC Platform (Network Infrastructure) revenue was $63.9 million, up 4% year over year.

Geographic Distribution of Sales

In the third quarter of 2012, the American region generated approximately $171 million of revenue, representing a year-over-year downside of 5%. Europe, Middle East and Africa generated $78.6 million, down 8% year over year. Asia-Pacific accounted for the remaining $85.8 million, down 4% year over year.


Gross margin in the reported quarter was 58.6% compared with 60.4% in the year-ago quarter. Operating expenses in the third quarter were $214.2 million, up 12.1% year over year.

Balance Sheet

At the end of the third quarter of fiscal 2012, Polycom had nearly $583.2 million of cash & investments on its balance sheet compared with $534.6 million of cash & investments at the end of fiscal 2011. Its balance sheet remained clear of any outstanding debt at the end of the third quarter of fiscal 2012.

Cash Flow

During the first nine months of 2012, cash flow from operations was over $121.4 million compared with $177.6 million in the prior-year quarter. Free cash flow (cash flow from operation less capital expenditure) in the previous quarter was $69.4 million compared with nearly $132.2 million in the year-ago quarter.

Our Recommendation

As of now, Polycom remains the only pure play unified collaborative solutions provider. The company stands to gain as enterprises, governments and educational institutions increasingly recognize the productivity-enhancing benefits of video conferencing. The company has already formed a consortium of open video exchange cloud with 14 leading telecom service providers across the world, which we believe will act as catalysts for growth for the company going forward.

However, stiff competition from its close rival Cisco (CSCO - Free Report) , which mainly dominates the corporate videoconferencing business may act as strong headwind for the company while moving ahead.

We thus maintain our long-term Neutral recommendation on Polycom. Currently, it has a Zacks #4 Rank, implying a short-term Sell rating.

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