Polycom Surprises Wall Street

Jan.25.08 | About: Polycom, Inc. (PLCM)

On Wednesday, Polycom, Inc. (NASDAQ: PLCM) reported its results for Q4 and fiscal 2007 that ended Dec. 31. Earlier coverage on the company is available here and here. My in-depth interview with CEO Bob Hagerty can be found here.

For Q4, net revenues were $263.3 million, up 41% y-o-y and 9.7% q-o-q. GAAP net income was $22.8 million, or $0.25 per diluted share, down 12% y-o-y and up 15% q-o-q. Polycom bought back $50 million worth of its stock, and still has $140 million allocated for its share repurchase program.

For the full fiscal year, net revenues were $929.9 million, up 36%. GAAP net income was $62.9 million, or $0.67 per diluted share, down 12.5%. SpectraLink, which was acquired in March 2007, contributed $113.5 million to the revenue. During the year, it fueled its revenue efforts by forming fruitful strategic partnerships with Avaya (NYSE:AV), Nortel (NT), Alcatel-Lucent (ALU), Cisco (NASDAQ:CSCO), AT&T (NYSE:T), Microsoft (NASDAQ:MSFT), 3COM (COMS), IBM (NYSE:IBM), and Easynet.

Product-wise, for Q4, video solutions revenue was $164.9 million, up 23% y-o-y and 13% sequentially. Of this, video communications revenue was $129.2 million or 49% of the Q4 net revenue, and network systems revenue was $35.7 million. Voice communications revenue was $98.4 million, up 88% y-o-y, and 5% sequentially.

Region-wise, Q4 revenue in North America grew 35% y-o-y but declined 2% sequentially. Revenues from EMEA grew 51% y-o-y and 23% sequentially, Asia grew 48% y-o-y and 34% sequentially, and Latin America grew 32% y-o-y and 22% sequentially.

2007 turned out to be a great year for Polycom with its revenue almost reaching the $1 billion mark driven by strong demand for IP-based collaboration. A report from Global Industry Analysts in July had estimated video conferencing revenue to reach $6.7 billion in 2007. The U.S. market is estimated to have $4 billion revenue in 2007. By 2010, video conferencing revenue is expected to reach $11.9 Billion.

As I discussed in my interview with Bob Hagerty, CEO of Polycom, video conferencing saves time, travel expenses, and makes communication easy for a highly dispersed workforce. The slowdown of the U.S. economy could actually work out in Polycom’s favor in that sense, which is a point that Bob emphasized on Wednesday. On the other hand, capital expenditure typically slows down during recessions, and could impact Polycom in 2008. Perhaps the two would cancel each other out, and it would be business as usual at Polycom.

Polycom’s market cap is now around $2.3 billion. Its price hit a 52-week low of $20.56 yesterday and picked up after the earnings. It rose by 12% in after-hours trading to open today at $24.97.

I still maintain that this is an excellent company, and for those in the market looking for value, Polycom is a great buy. If you already own it, don’t sell. Over the 3-5 year window, video conferencing will gain ground in a huge way.

click to enlarge