Yet another sign that insanity has gripped the markets: the "whisper number" rears its ugly head after three-plus years of silence.
Foundry's CEO Bobby Johnson also stated that he foresaw a "more competitive environment" in 2004 than what existed in 2003. This tells me much of what I need to know about this sector -- it still has way too much capacity for any reasonable demand expectations. Last year's total revenues for Foundry ended up just a hair below $400 million, which was about 25% higher than total revenues for 2002, but barely above 2000's numbers. Total earnings for 2003 was $75 million, $24 million of which came in the fourth quarter. Free cash flow -- a better measure of economic generation in general, but especially so with many stock-option-happy tech companies -- for 2003 came in at $95 million.
And for this the stock market valued the company at $4 billion as of yesterday's close. That's assuming enormous growth, which at least for the short term company management has said is unrealistic. After a singe year of rebound, they're seeing a more competitive environment. Kudos for the frank assessment, but you've really got to wonder whether investors in Foundry have stopped to think what expectations are baked into the company's share price right now. The return of the whisper number and the mauling the company is taking today tells me one thing -- many haven't.
Some investors are counting on the company basking in the residual glory of Cisco
Counting on whisper numbers and happy-happy thoughts to keep your investment intact? At a minimum the folks at Foundry should get credit for giving a frank assessment of the environment, but that's still cold comfort for folks who are speculating that the technology market will continue to boom. That the environment looks tighter to Foundry after only a few months of increased spending does not inspire confidence that this is a reasonable expectation. That whisper may actually be a scream.