Extreme Networks Stock Drops After Its Brocade, Avaya Acquisitions Disappoint in Revenues

Extreme Networks stock closed today at $6.24, down about 30 percent after it reported its fourth quarter 2018 earnings yesterday. The company’s stock had been trading at around $8.96 prior to its earnings call with investors.

“We were surprised by a shortfall of approximately $10 million in our data center bookings during the last week of the quarter,” said Extreme Networks’ CEO Ed Meyercord on the investor call. “It’s clear we didn’t handicap the pipeline appropriately.” He said the company will have to reduce expectations by approximately $50 million per quarter in the first half of fiscal 2019. And it expects to return to growth in the second half of fiscal 2019.

Going into fiscal Q1 2019, “we expect revenue in the range of $230 million to $240 million and non-GAAP earnings per share of $0.00 to $0.07 per share,” he said, according to the Seeking Alpha transcript.  The company is streamlining the manufacturing and supply chain for the entire product portfolio of the companies it recently acquired.

In October 2017, Extreme purchased Brocade’s data center networking assets for around $55 million. And in 2017 it also closed on its $100 million purchase of Avaya’s networking business. During the acquisition process, Extreme predicted the Brocade assets would generate over $230 million in annualized revenue and that the Avaya assets would generate a minimum of $200 million in revenue in fiscal 2018.

But its high hopes for those acquisitions aren’t panning out for the company as quickly as it projected.

Meyercord said, “We’re actively reducing our number of global distributors from 411 following our two acquisitions in fiscal 2018 to 250 today with a goal of shrinking further over the next two quarters.”

In addition, the company is streamlining its product portfolio, reducing some programs associated with older products. At the same time, it’s adding resources to its data center sales team and launching sales enablement programs across its global sales organization.

But based on its stock drop, investors obviously are skeptical.

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