ShoreTel (Nasdaq: SHOR ) , which sells IP phone systems, had a rocky IPO in July, what with Mitel filing a patent infringement suit on the eve of the offering. But so far, that has had little effect, as ShoreTel's business and stock price continue to rev up.
For the third quarter, ShoreTel posted a 57% increase in revenue, and net income was $2.6 million, or $0.06 per share, compared with net income of $1 million, or $0.03 per share, in the same period a year ago.
Gross margins continued to improve, going to 64% from 61%. On the conference call, management indicated that the improvement has been the result of hefty revenue as well as efficient product development.
ShoreTel recently launched version 7.5 of its platform. There are better switches, international support, and more integration with Microsoft's (Nasdaq: MSFT ) Exchange Server. These cutting-edge products are getting attention because ShoreTel has made alliances with CDW and Black Box (Nasdaq: BBOX ) . And during the quarter, the company signed a distribution agreement with AT&T (NYSE: T ) . While this is an important deal, it likely will take a couple of years for the relationship to hit critical mass.
True, ShoreTel faces considerable competition from the likes of Cisco (Nasdaq: CSCO ) and even Microsoft. However, other competitors, like Avaya (NYSE: AV ) and 3Com (Nasdaq: COMS ) , are undergoing buyouts. This can create uncertainty with customers, giving ShoreTel an edge.
What about the Mitel lawsuit? While it's a concern, I think ShoreTel has responded aggressively by filing a countersuit alleging patent infringement by Mitel. ShoreTel is also seeking $10 million in damages for "false or misleading statements" regarding the public offering.
More importantly, it looks like Wall Street is shrugging off the litigation. After all, ShoreTel's stock is up more than 50% since the IPO. But for Foolish investors, it's probably best to be cautious because IPOs can be quite volatile. If you want to pick up shares in ShoreTel, you can probably wait for a lower price as the trading subsides.
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