Packeteer Losses Widen

WAN optimization specialist Packeteer, facing tough competition from rival vendors and internal struggles, suffered falling revenues and widening losses in its second quarter, according to results posted earlier today. (See Packeteer Earnings 'Disappoint'.)

The vendor posted second quarter revenues of $32.4 million, down from $34.2 million in same period last year, and well below analyst estimates of $37.3 million. Packeteer's losses also widened, posting a net loss of $5.6 million, or 16 cents per share, compared to a loss of $800,000 and 2 cents in the second quarter of 2006.

On a non-GAAP basis, Packeteer posted a second quarter loss of $2.9 million and 8 cents per share, compared to net income of $4.3 million and 13 cents per share in the second quarter of 2006. Analysts had estimated earnings of 0 cents per share.

Packeteer's results are a stark contrast to the picture painted by other WAN optimization vendors such as Riverbed and Cisco. (See WAN Optimization Forges On.) Cisco, for example, recently announced the 1000th customer for its Wide Area Application Services (WAAS), while Riverbed has already reached the 2,000 mark. (See Cisco Widens WAN Optimization and Riverbed Gets 2000 Customers.)

Speaking on a conference call, Dave Cté, the Packeteer CEO, admitted that he is keen to put the last few months behind him. "We recognize that we have not delivered in the first half of this year," he said. "The second quarter of 2007 was extremely disappointing and well below our expectations."Packeteer execs on the call also highlighted a tough competitive environment and lack of user demand. "We saw significant weakness in the Americas and EMEA," explained Côté, adding that this was compounded by "internal product transition issues," tied to the recent launch of the iShaper appliance.

In a nutshell, iShaper weds Packeteer's PacketShaper WAN optimizers with the capabilities of the iShared file services software acquired when the vendor bought Tacit Networks. (See Packeteer Picks Tacit.) In an added twist, Packeteer also unveiled a partnership with Microsoft to enhance the iShaper's ability to handle voice and video, application quality of service, DNS and DHCP, and "native" support of Microsoft services above and beyond the file and print caching common to many WAN optimizers. (See Packeteer Gets Microsoft Push and Microsoft, Packeteer Intro iShaper.)

But the introduction of iShaper has impacted other parts of the Packeteer portfolio. "We have been disappointed with sell-through of our other product lines," said Packeteer CFO David Yntema.

CEO Côté is nonetheless looking for better things over the coming months. "In the second half of 2007, we will roll out more products," he said, adding that this will include a "a new, high performance, multi-Gigabit architecture," and enhanced management and mobile technologies.

The exec will also continue to throw his weight behind iShaper. "Our focus is on ramping iShaper in Q3 is critical to our momentum," he said. "It will enable us to return to growth in the second half of 2007."Packeteer, which did not provide any third quarter guidance on its earnings call, is also embroiled in a tax dispute with the IRS, although there was no indication as to when this will be resolved. "We strongly believe that our position is correct," said Yntema, adding that Packeteer has "ample reserves" available to support its position.

— James Rogers, Senior Editor Byte and Switch