Fool.com: Ditech Plugged In (News) August 20, 1999

Ditech Plugged In

By Dave Marino-Nachison (TMF Braden)
August 20, 1999

Shares of telecommunications and cable communications network construction equipment company Ditech Communications Corp. (Nasdaq: DITC) rocketed up nearly 70% today on heavy trading volume after the company turned in fiscal first quarter financial results and gave an optimistic outlook for quarters to come.

The shares finished the week up more than 100% from last Friday's close of $24, providing investors with the kind of pop they've come to expect since the company went public in June at $11 per share.

EPS for the quarter was $0.09, beating last year's breakeven figure and First Call's three-analyst consensus estimate of $0.04. Revenues were $9.8 million, nearly 91% above year-ago figures. It was the company's seventh-consecutive quarter of sequential sales increases.

"This quarter's results were clearly driven by the volume deployment of our new generation of echo cancellation products, the Quad and Broadband,'' said Ditech President and CEO Tim Montgomery.

The company's business falls into two categories, led by echo cancellation -- the elimination of speech echoes heard during telephone calls -- and optical communications subsystem products for use in wavelength division multiplexing, which puts data from different sources on one optical fiber (but separate wavelengths) to conserve network capacity. "Overall," Montgomery said, "Ditech's first quarter as a public company was excellent. We exceeded our revenue plan and met our goals for operating expenses."

Enough about yesterday and today; what about tomorrow?

"Beyond the good news in this quarter," gushed Montgomery, "we also received a substantial order from one of our largest customers for deployment of our Quad and Broadband products." The order, unexpected, looks to boost revenue by $12 to $15 million over the next three quarters, more than 40% above the company's total revenues for the trailing 12 months.

Ditech further said it settled a legal dispute with broadband networking products supplier Antec Corp. (Nasdaq: ANTC) by agreeing to license some of its optical technology to Antec for a fixed, and unspecified, dollar amount plus royalties. Ditech in 1998 accused Antec of breaking a contract to buy its products; Antec spat the same accusation back later that year. The companies finally shook hands today.

What should investors make of this news? Ditech typically relies on just a few customers for most of its orders -- over three-quarters of its revenues came from just five companies for the last three quarters (Antec wasn't one of the top 10 in fiscal 1999) -- so anytime the company announces a new means of generating sales growth it's a good thing. (It's done well to continue growing sales lately after a big slowdown in business from MCI, which cut orders drastically after it was bought by WorldCom.)

Antec, for its part, records well over half a billion dollars in annual sales to the cable industry, so the opportunity for Ditech to benefit from the deal certainly seems tangible.

Related Links:
Ditech Web Site
Ditech Message Board

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