Boring Portfolio

APCC Call, Part 2
Q2 summary continued

By Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (August 2, 1999) -- The following is part 2 of American Power Conversion's (Nasdaq: APCC) fiscal Q2 1999 conference call. On Wednesday, I will include the question and answer session.

"Over the past few quarters, we've discussed to some extent the opportunity that lies in the telephony markets associated with a variety of emerging technologies in that space. We are developing relationships with the players in this market, which can serve us well as the industry continues to develop. The telephony marketplace is one where APC has historically held a limited presence. With the power changes in technology as well as the expansion of our product set into larger UPS systems, we are poised to play a greater role in this market.

"Just last month, Computer Telephony magazine gave the Silcon DP300E product its editor's choice recommendation. Large untapped opportunities in the enterprise space, spurred by our acquisition of Silcon last year, not only serves to expand our product and application range, but is also the catalyst for today's announced new customer-driven organization.

"We are fine-tuning our focus to address the varying needs of our diverse customer base, which we've organized around customer groups, application areas, and geographic markets. To help accomplish this, we are implementing a new customer-driven APC under which we are reorganizing our global sales and marketing operations into two groups... the Small Systems Group (SSG) and the Enterprise Systems Group (ESG). SSG consists of much of APC's traditional business operations, focusing on customers who operate under a more transactional model. ESG is focused on sales into the enterprise space. This group is tasked with the geographic expansion and segment share growth.

"While we are very excited about these new sales and marketing organizations, this announcement truly goes beyond just those two groups. We have also consolidated as related to the various application areas we address. As a result, we are focusing on three primary application areas, including 1. Desktop; 2. Business Networks; and 3. Facility and Datacenter areas.

"Separately, capitalizing on our global manufacturing presence, we will be closing our Ft. Myers, Florida manufacturing facility during the third quarter, where we have over 200 employees and have been operating since 1994. The closure of manufacturing in Florida is really the end-result of a very successful expansion of global manufacturing capacity, especially into the Philippines, which we have undertaken in the past several years. While we recognize that some of the personnel decisions that go along with these changes are extremely difficult, we are confident that the resulting organization will be better suited to meet the needs of our customer base. We will [aggressively invest] in building our business into new markets where we had not been before [and which] require solid investments gleaned from our operating efficiencies and restructuring activities to accomplish this."

"These actions do not alter our outlook for the remainder of the year, nor does it alter our financial model. We will record a charge in the third quarter of approximately $0.01 per share associated with the organizational changes. Despite this charge, our guidance for the full year remains the same as it was on April 22, when we released first quarter results. That is, we were and are comfortable with a pre-split consensus estimate for the full year 1999, published at that time, of $1.85 per share. This translates into $0.93 post the 2-for-1 stock split effected May 21.

"We remain cautious related to the impact on IT purchasing related to the year 2000. We have not seen any indication that the general uncertainty in the market related to spending in the late part of 1999, or even in the early part of 2000, has abated. So we believe there continue to be some compelling long-term trends that bode for well for the adoption of APC solutions.

"....U.S. residents, particularly in the Northeast, have been frequently reminded of the limitations of our utility grid recently. With the record temperatures and frequent heat waves, the demand for power has been staggering. The utilities in many instances have not been ready for it. In fact, [New York City] Major Guiliani is suing Consolidated Edison. All he's asking for is that steps be taken to avoid plunging New York City into darkness during peak demand hours. It's a story that really drives home the limits of our utility distribution systems and how seemingly normal events can disrupt power and everything running on them. However, we think it is important to point out that despite these record temperatures and subsequent power outages, it is very difficult to point to a given year and say that storm or weather conditions influenced sales unusually....

"Finally, we continue to see opportunities in the global IT markets we are serving. Overall, the network continues to proliferate not only in numbers but in usage. We believe the move of telephony, as well as storage, to this medium is a long-term positive for APC. The continued trend towards maximizing the availability of systems also can't be overlooked. Additionally, the expansion into markets of protecting mainframes and larger systems has coincided well with the resurgence of centralized computing and mainframe technology from folks like IBM. We believe we are well positioned to expand our relationships in accounts like this to meet the needs of not only the network piece but the enterprise piece as well."

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APC Q2 Press Release

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08/02/99 Close
Stock Change   Bid
APCC  +  3/8   21.13
BRKb  -49      2078.00
CSL   -1 5/16  44.44
GTW   +  11/16 76.81

                  Day     Month   Year  History
        BORING   -0.87%  -0.87%   3.37%  38.80%
        S&P:     -0.05%  -0.05%   8.62% 121.51%
        NASDAQ:  -0.56%  -0.56%  19.65% 152.04%

    Rec'd   #  Security     In At       Now    Change
  8/13/96  200 Carlisle C    26.32     44.44    68.80%
  4/20/99  460 American P    14.48     21.13    45.92%
   2/9/99  100 Gateway 20    72.38     76.81     6.13%
 12/31/98   12 Berkshire   2276.17   2078.00    -8.71%

    Rec'd   #  Security     In At     Value    Change
  8/13/96  200 Carlisle C  5264.99   8887.50  $3622.51
  4/20/99  460 American P  6659.25   9717.50  $3058.25
   2/9/99  100 Gateway 20  7237.50   7681.25   $443.75
 12/31/98   12 Berkshire  27314.00  24936.00 -$2378.00

                             CASH  $18177.16
                            TOTAL  $69399.41