Tuesday, August 5, 2008

Earnings Preview

There are only two analysts listed in Yahoo that provide estimates for the company and today, the numbers were updated for one analyst that reflected the sale of the PCD. I will focus on Q3 estimates rather than Q2 numbers (that included the PCD). For Q3, the revenue estimate is a low of $215.8m and a high of $259.5m for an average of $237.6m.

By using the analyst day numbers of $1.035b in 2008 revenues ($755m core + $280m internal handset) and backing out Q1 & Q2 core and internal handset revenue, I estimate there are about $600m more in revenues to be recognized in Q3 & Q4. The estimates for Q3 suggest that more of that revenue will be recognized in Q4. The estimated loss of 29 cents also makes sense with the revenue estimates.

The potential negatives for the call tomorrow include:

1. Continued loss in Q3.
2. Guidance that is lower than consensus or the low of the estimates
3. Slow down in iptv implementation
4. Higher OPEX than $95m
5. Any write downs

The potential positives include:

1. Guidance that is higher than consensus
2. Good book to bill (previous guidance of 1.5 on the non-pcd)
3. Higher shareholder equity/book value due to sale of PCD/MSBU
4. New contract win announcements
5. Use of excess cash for share buy back or a special dividend

From the lists above, guidance for Q3 is going to be key in the short term. Q2 could come in better than expected and less revenue could be left for Q3/Q4. The range from $215m to $259m for Q3 is a wide range with only two analysts.

Overall, I am more bullish than bearish going into the call only because the Q3 revenue estimates don't seem too high and Q3 will include July and August that should see an uptick in China iptv/pas due to the olympics. If Q3 guidance is even lower than $237m, then there will be about $360m or more in revenue for Q4. That would yield a profitable Q4.

Another interesting number from today's updated estimates is the 2009 revenue estimates. The two estimates are for revenue of $1.2b and $1.29b. If 2008 revenue comes in at $1.035b, that would be revenue increases of 16% and 25% respectively and taking into account PAS. Looking at the 2nd half of 2008 numbers and 2009 makes me wish that the company still had the PCD profits! On the other hand, its nice to see that the company is more transparent at this stage and the focus is on the core business.

The recent price action has not been very encouraging but the company's execution over the last year has set the stage for much better performance the rest of 2008 and beyond.