Alas, poor Polycom
For those who've forgotten about Polycom, it's the self-proclaimed "largest company in the Unified Collaboration industry." And true to the name, Polycom does a whole lot of collaborating of its own. Management boasts of Polycom's strategic partnerships to develop VoIP and video communications solutions with Avaya , Cisco
The company also features a co-development and marketing partnership that provides phones and other services for Microsoft's
Now that your memory is refreshed on who Polycom is, here's a quick rundown of what Polycom did last year:
- Fiscal 2008 revenues increased 15% to $1.1 billion.
- Profits leapt 30% to $0.87 per share.
- Yet free cash flow flatlined, sitting essentially unchanged from one year ago at $119.2 million (Hmm. So maybe we didn't miss much over the past year after all!).
- Contributing to the anemic free cash flow is the fact that Polycom's letting its inventories run up (26%, or significantly faster than sales).
Which leads us to the reason the shares declined yesterday. Ordinarily, you wouldn't expect a 15% rise in sales to upset investors. Even less so a rise in profits twice as great. But according to Polycom, business isn't looking quite so brisk right now. Management forecasts a first-quarter decline in sales of somewhere between 9% and 13%, which is a steeper sales drop than the 6% decline expected by Wall Street.
Valuation
So a bleak Q1 forecast accounts for the shares' decline yesterday, and analysts aren't predicting much of a future for the company even further out. Turns out, the consensus of nearly a dozen analysts polled is that Polycom won't grow its profits much more than 6% a year over the next half-decade. My reaction?
Bunk.
I simply don't believe the number. These same analysts expect Polycom's industry to grow at a significantly higher pace than Polycom itself. This makes little sense to me. I think teleconferencing has a future, and that Polycom's front-runner status and strong partnerships in the growing unified collaboration field ensure its days of greatest growth lie ahead of it -- not behind. And I also think I'll be watching this company -- and writing more about it -- in the years to come.
Further Foolishness on Polycom can be found in: