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Shares of Polycom (PLCM) fell 20% on Thursday after the provider of communication devices lowered its first quarter outlook.

Lowered Outlook

Polycom announced a first quarter outlook which came short of analyst expectations. The company expects net revenues of $364-$370 million for the first quarter of 2012, up some 7% at the midpoint of the range compared to last year. Earnings are expected to come in at $0.07-$0.09 on a GAAP basis compared to $0.19 last year.

Analysts were expecting the company to report $400 million in revenue and earnings per share of $0.30. The videoconferencing company said revenues came in lower than expected as a result of demand shortfalls in Asia and North America. The results make investors wary about execution risk and increased competition. Polycom's CEO Miller says the company has expanded its sales force to compete more effectively with its major competitor Cisco.

Valuation

The videoconferencing company holds over $530 million in cash and equivalents and operates without debt according to its latest quarterly release. With a market value of $2.5 billion, this values operating assets at around $2 billion. After the significant decline in its share price, Polycom trades around 1.3 times annual revenue and 15 times annual earnings. This ratio compares to a a revenue multiple of 2.3 times and earnings multiple of 16 times for its major competitor Cisco (CSCO)

Investment Thesis

Shares have fallen some 60% after reaching an all time high of around $34 in July last year after the company announced a string of disappointing outlooks. While the miss is quite severe and execution risks are on the rise, the extend of the correction could provide long term investors with an interesting entry point.

Source: Polycom: 60% Correction Provides Interesting Entry Point