Perhaps it's because Avid Technology (NASDAQ:AVID) is on the cutting edge of digital media creation, but it certainly has been a challenge for analysts to accurately gauge its growth. Analysts aren't the only ones struggling: Even the company's management has experienced difficulty in pinpointing exactly how each quarter will play out.
Results from the fiscal 2006 first quarter are the latest example. Revenue of $218 million, with growth of 31.3%, is certainly nothing to sneeze at. Unfortunately, both analysts and Avid's leadership had been anticipating more -- consensus analyst estimates called for a little more than $230 million in revenue. The weaker sales aren't totally unexpected because the company lowered its expectations with an announcement in April.
Professional video sales, which were dragged down by broadcast products, contributed to the weakness. And there was lower demand for on-air graphics engines as well as server products. In the conference call, management suggested that a part of the problem the broadcasting unit is facing is that the company's Pinnacle and Avid lines have not been completely integrated. This has allowed competitors to pick off parts of the broadcasting business. As the Pinnacle acquisition becomes more integrated into the Avid line, these gaps of opportunity for the competition should diminish.
Avid Technology also experienced weakness in its storage as well as consumer video segments. The storage drop-off is partially because of the transition to the new ISIS system. And a quality issue in Pinnacle's Studio software is hampering consumer video. Management indicated that these bugs have since been worked out, and the company expects consumer products to finish up strong by year-end.
Management expects not only consumer products sales but also the broadcast market to pick up the pace significantly in the second half of the year. For the year, management is projecting earnings of about $2.25 per share.
Given its recent double-digit growth rates, Avid Technology still warrants a look at roughly 17 times expected full-year earnings and despite the latest inconsistencies. The company is the 800-pound gorilla in the digital media creation business, and with revolutionary products -- like a state-of-the-art workflow system called Interplay set for release this summer -- Avid Technology will continue to set the bar higher.
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
