Original Source: FD (FAIR DISCLOSURE) WIRE
. Peter Tallian, TranSwitch, CFO . Santanu Das, TranSwitch, President and CEO . Tim Kellis, Stanford Group, Analyst . Herb Chen, Chen Capital Management, Analyst . Jeremy Chappell, Keys Capital Market, Analyst . Richard Shannon, Northland Securities, Analyst . Bill Laemmel, Divine Capital Market, Analyst
TXCC reported 2Q06 net revenues of approx. $10.3m and gross profit of $7.3m. For 3Q06, the Co. expects operating loss of $3.3-3.5m and diluted loss per share of $0.03-0.04.
A. Key Data From Call 1. 2Q06 net revenues = approx. $10.3m. 2. 2Q06 gross profit = $7.3m. 3. 2Q06 GAAP GM = 71% of revenue. 4. Net cash position at the end of 2Q06 = approx. $34m. 5. 3Q06 expected operating loss = $3.3-3.5m. 6. 3Q06 expected diluted loss per share = $0.03-0.04.
S1. Business Review (S.D.) 1. 2Q06 Highlights: 1. TXCC finished 2Q06 strongly with approx. $9.7m of revenue without Mysticom.
1. This represents 6% growth over 1Q06 revenue of $9.2m.
2. With Mysticom, the total revenue was $10.3m. 3. New product revenue was approx. one-third of total product revenue. 2. The book-to-bill ratio for 2Q06 was 0.8 without Mysticom. 1. Mysticom bookings were modest in 2Q06. 3. GM in 2Q06 on a GAAP basis was 71% of revenue. 4. Design Wins: 1. The Co. secured 39 design wins worldwide with 20 customers. 1. Seven of these design wins were with ET-3 and seven with Envoy. 2. The Co. believes that in 3Q06, it will secure a very strategic design win with Envoy in Alcatel's
(indiscernible) platform, ISAM 7302. 2. Design win momentum with new products is continuing. 1. EoPDH and Envoy-XE are gaining traction at several key customers and the Co. is pleased with the initial reactions to its Mysticom suite and intellectual property
offerings. 2. TXCC's dominance of the EoS market continues and it is evidenced by the strong bookings momentum the Co. is gaining with its EtherPHAST-48. 3. The Co. is scheduled to ship in excess of 1m of this product in 3Q06. 5. OpEx, excluding restructuring and the expense impact of stock options, was $9.1m in 2Q06, including Mysticom. 1. Without Mysticom, expenses were $8.3m without stock option expense vs. $8.8m in 1Q06. 6. In summary, 2Q06 was a strong qtr. for TXCC overall, and it entered 3Q06 with strong confidence regarding the long-term prospects of the Co. 1. This is based on the fact that the Co. has design wins in the key platforms of most of the tier 1 customers of its
product portfolio and road map is in sync with the wireline market trends. 7. TXCC's balance sheet is strong and the Co. has been successful in reducing its expenses systematically. 2. Industry Environment: 1. In 1Q06, the Co. commented on the fact that Alcatel and Lucent announced their merger plans, and the big news in 2Q06 is the announcement that Nokia and Siemens will mark their carrier infrastructure business to form the third largest wireline and wireless infrastructure co. 1. Including Ericsson's acquisition of Marconi last year, this is the third major consolidation in the industry. 2. Analysts believe that in the long term, all three of these deals are positive for the industry since capacity will be reduced in the equipment sector in line with the demand.
2. In addition to these consolidations, analysts also believe
that Nortel, one of the Co.'s customers, is facing its own
challenges. 1. In the short-term, as a result, there is some uncertainty in the industry. 2. TXCC strongly believes that these consolidations will be behind it by the end of 1Q07, lifting the cloud of uncertainty. 1. As these all settle down, wireline growth will be driven by next-generation broadband network rollouts around the globe. 3. The Co. believes the end market competition between the telcos and cable operators offering triple play services is the driver behind equipment spending for broadband access, carrier-class routers and switches, and metro optical gear. 4. The trend is also toward wireline and wireless convergence based on Ethernet and IP as the protocol of choice. 1. With this convergence, the carriers can compete with cable operators by offering quadruple play.
5. TXCC has been actively monitoring this trend in the industry, and it is focused on developing products, which target these growth segments of the communication market. 6. The Co.'s success with [FTEL] amply demonstrates that its product portfolio and road map are in sync with its customers' need to be successful. 3. US GPON RFPs are now moving into final vendor selection phase. 1. The three leading vendors are Alcatel, Tellabs and Motorola, and TXCC has excellent relationships and credibility with all of them. 1. In this connection, the Co.'s imminent design win with its Envoy - CE2 in Alcatel's ISAM SDSL platform is very important in strategic terms. 2. While the Co.'s revenue from this design win is going to be modest in the near term, this design win gives it a
strong foothold in Alcatel's access platforms. 3. When its GPON devises are rolled out, this win is expected to give it a competitive edge. 4. The Co. already has very high credibility with Alcatel,
because of the comprehensive support it has provided with its EtherPHAST-48 product. 2. In …