War Fogs Foundry's Numbers

Foundry Networks Inc. (Nasdaq: FDRY) said yesterday that its fourth-quarter profits had fallen by 31 percent and its revenues were off by 6 percent, thanks to a decline in federal spending. The switch maker posted quarterly revenues of $104.8 million, down from $111.1 million from the same period of the previous year. This was below analysts' estimates of $106.67 million (see Foundry Profits in Q4).

The company earned $16.7 million, or 12 cents a share, which was in line with expectations. This compares to earnings of $24.1 million, or 17 cents per share, for the same period of 2003.

Foundry did report record full-year revenues of $409.1 million, which was up from the $399.6 million it reported in 2003. But that, too, was a disappointment, as analysts were looking for revenues of $411.3 million.

The vendor's full-year 2004 profits were $48 million, or 34 cents a share, which was down from the $75.1 million, or 55 cents a share, it earned in 2003.

Excluding the expense of Foundrys litigation settlement with Nortel Networks Corp. (NYSE/Toronto: NT), however, the company's net income for 2004 was $66.7 million, or 47 cents a share, which was in line with analysts' expectations (see Nortel, Foundry Settle Suits).On its conference call Thursday, Foundry execs highlighted a decline in the company’s federal spending as its sore spot for the quarter. The U.S. government, which traditionally accounts for around 28 percent of Foundry revenues, only accounted for 23 percent of its revenues in the quarter.

Foundry CEO Bobby Johnson explained that the company is feeling the effects of events in Iraq. “The one area that could have been more productive for us was the U.S. Federal Government sector -- it was greatly affected by the shifting of budgets to the Iraqi war effort.

”Money is being redirected to bombs and bullets as opposed to infrastructure."

Johnson, who faced a barrage of questions on the future of Foundry's Federal business, admitted that some deals scheduled for December did not go through until January. Other anticipated government deals, however, may have disappeared into the ether. “I don’t known if these projects will be funded or not,” he said.

On the product side, Johnson promised to follow up the company’s newly launched 10-Gig SuperX switches with its new Internet and Metro Router (IMR) (see Foundry Flashes SuperX Switches).Johnson provided some details on the new product, which he described as more scaleable than Foundry’s existing NetIron 40G router. The new device can deal with 480 million packets a second, he said, and will be launched later this quarter.

The exec added that the IMR will be positioned against the GSR, CSR, and OSR routers from Cisco Systems Inc. (Nasdaq: CSCO), as well as Juniper Networks Inc.’s (Nasdaq: JNPR) T320.

Johnson also hinted that Foundry is planning its first acquisition. With the company’s cash position up $112 million from 2003, the CEO said that the money could be used to snap up another firm. “It allows us to acquire technologies and companies and get us to the next level."

However, the Chief got all cryptic when pressed on the likely targets: ”It will be focused more on adjacent opportunities where we can extend our reach. This is a scenario where we are a very patient company.”

— James Rogers, Site Editor, Next-Gen Data Center Forum0