Polycom's Two-Edged Sword

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On the one hand, Polycom, Inc. (NasdaqGS: PLCM - News), a leading provider of voice/video conferencing solutions, should be expected to benefit from tigher travel budgets at business enterprises worldwide. However, the company has also been exposed to the effects of the economic conundrum that is forcing restricted IT and computer equipment spending.

The company recently reported mixed financial results for the first quarter 2009. Total revenue was $225.4 million, down 13% year-over-year and down 14.3% sequentially. Net income on a GAAP basis was $8 million, or an income of $0.10 per diluted share, compared to a net income of $14.2 million or an income of $0.16 per diluted share in the same quarter of the previous year.

However, the company incurred $4.8 million of intangible asset amortization charges and another $7.5 million of special charges in the reported quarter. Adjusted diluted EPS in the first quarter was $0.22. At the end of the reporting period, the company had approximately $338.7 million of cash & marketable securities on its balance sheet and no debt outstanding.

Business enterprises on a global basis are facing restrictive travel budgets with operating cost control and reduced business prospecting. Under this scenario, we believe, Polycom's high-definition telepresence solutions will continue to serve as a cost-induced alternative in an increasingly interactive world.

However, as the company is witnessing, extremely volatile economic conditions, contraction of global financial liquidity, and the highly competitive nature of the unified collaborative communications market has limited overall business improvement. The future financial outlook provided by the management is also tepid. We maintain our Hold rating at this reporting juncture.

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[UC200]

Comparitevly here are Tandbergs results:

TANDBERG announced financial results for the first quarter ended March 31, 2009.

Overview of 1Q09:

Revenue of 193.3 MUSD (+8.5%)
Operating profit of 40.8 MUSD (+9.2%)
Cash flow from operations of 36.0 MUSD (+52%)
Volume of 16,610 units (+10.2%)
Significant new products launched in the quarter
Industry seeing effects of constrained capital expenditures
FINANCIALS
First quarter revenues were 193.3 MUSD compared with 178.1 MUSD in the same quarter last year, representing 9% year-over-year growth. Gross margin for the quarter was 66.0%, compared with 65.6% in the same quarter last year. Selling, general & administrative (SG&A) expenses for 1Q09 totaled 74.3 MUSD, compared with 69.8 MUSD in 1Q08. Operating profit was 40.8 MUSD compared with 37.4 MUSD in the same quarter last year. Earnings per share (after tax) were 0.25 USD in 1Q09 compared with 0.22 USD in the same quarter in 2008.

The Company generated cash flow from operations of 36.0 MUSD in the quarter, which after a net cash outflow from investments of 17.2 MUSD, gave total cash inflow of 18.8 MUSD. As of March 31, the Company had a cash balance of 193.4 MUSD and an equity ratio of 65.6%.

It seems that whilst Polycom is suffering from it's internal management issues, TANDBERG is continuing to gain marketshare.

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