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Polycom, Inc. (NASDAQ:PLCM) is scheduled to release its third quarter 2011 results on Wednesday, October 19, after the closing bell. The current Zacks Consensus Estimate for the third quarter is pegged at 21 cents, representing an annualized growth of 79.71%.

With respect to earnings surprises over the trailing four quarters, Polycom has outperformed the Zacks Consensus Estimate in all the three quarters except for the last quarter where it missed the Zacks Consensus Estimate by 2 cents. The average earnings surprise was a positive 14.05%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude during the same period.

Second Quarter Recap

On July 21, 2011, Polycom reported its second quarter 2011 financial results. Total revenue in the second quarter of 2011 was a record high of $365.6 million, up 24.1% year over year, surpassing the Zacks Consensus Estimate of $362 million. The increase in revenue was primarily attributable to strong growth at both its voice and video communications businesses.

GAAP net income in the reported quarter was $28.5 million or 16 cents per share compared with a net income of $12.6 million or 7 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the reported quarter was 19 cents, below the Zacks Consensus Estimate of 21 cents.

Gross margin in the reported quarter was 60.4% compared with 58% in the year-ago quarter. Operating expenses in the reported quarter were $182.1 million versus $155 million in the prior-year quarter. Quarterly operating margin was 10.6% as against 5.4% in the year-ago quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 9 analysts covering the stock, none increased or decreased their estimates for the third quarter of 2011. Likewise, for the fourth quarter of fiscal 2011, none of the analysts raised their estimates but three analysts reduced their estimates.

For fiscal 2011, in the last 30 days, out of the 9 analysts covering the stock, none increased their estimates but two analysts decreased their EPS estimate. Likewise, for fiscal 2012, out of the 9 analysts covering the stock, none of the analysts raised their estimates but three analysts reduced their estimates.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate was in line with the ongoing quarter at 21 cents but for the fourth quarter of 2011, the Zacks Consensus Estimate was a penny above the current estimate of 27 cents. Similarly, for fiscal 2011 the Zacks Consensus Estimate was a penny above the current estimate of 86 cents. Likewise, for 2012, the Zacks Consensus Estimate was 3 cents above the current Zacks estimate of $1.17.

Earning Surprises

In the previous quarter, Polycom reported EPS of 19 cents, which beat the Zacks Consensus Estimate by 2 cents. The current Zacks Consensus Estimates for the ongoing quarter reflects a 0.00% downside potential while the upcoming quarter contains a 3.70% upside potential (essentially a proxy for future earning surprises). Similarly, fiscal 2011 and 2012 has 2.33% and 3.42% downside potential, respectively.

Our Recommendation

Polycom is well positioned financially to pursue its future ventures. The company is currently developing video conferencing application for smartphones and tablets. With the growing popularity of smartphones and tablets, Polycom will have huge growth opportunity going forward.

However, we remain concerned regarding the fiercely competitive nature of the video conferencing industryand the future business infrastructure spending by enterprises in the European regions. Cisco (NASDAQ:CSCO) has emerged as the main rival of Polycom, after it purchased Tandberg TV of Norway.

We, thus, maintain our long-term Neutral recommendation forPolycom, Inc.Currently, Polycom, Inc.has a Zacks #3 Rank, implying a short-term Hold rating.