This is another reminder that on May 12th I am presenting at a Workshop for Small Business Week with the Santa Rosa Chamber of Commerce. My topic is “The Way to Wealth Formula” and I am paired with Cynthia Riggs who is presenting “The Fastest, Easiest Way to Write Your Business Plan”. There are other friend of mine presenting as well! George Merrick of Interface Financial Group is leading a panel Discussion on Alternative ways of funding a business. John McHugh of Winning Workforce is presenting :6 Things You Must Know to Hire and Keep Talent-Do you Know Them?” on Thursday May 15th. Follow this LINK to the main page describing all the Workshops! There is a cost benefit to signing up early!
As it is getting into earnings season, I will be starting my Sonoma County Tech earnings reviews with Calix. The numbers were down a bit again this quarter year over year. That marks the 2nd quarter in a row. The call was very non-descript and for a company of $300M+ the CEO opening remarks were the shortest that I can recall. I am going to review the call and then make a couple of general comments at the end. There were 3 themes on the Call:
– BroadBand Stimulus
– Ericsson and International
– Tier 1 Traction
On the BroadBand Stimulus (aka BBS), I think Calix announced for the first time some changes in the way this should be viewed. The idea of this Stimulus package was to encourage spending in rural America for Broadband Service. This has been a troubled program from a results standpoint since it has been announced. What Calix said was that the spending was not incremental but a substitute for original spending. What this means is that companies took the money and used it to fund programs that they were going to do anyway. I have been saying this for years. My bigger concern was that any uptick would just come out of future spending. You should think about spending in these areas like you would about spending on roads. Are you likely to build unnecessary roads just because someone will give you money? Are you more likely just to build and rebuild the roads that you know you need? The latter is what has happened. What will help this market is a return to building homes that need new connections. Given the low inventory in Real Estate that I talked about last week, it would seem to be a matter of time.
Calix made a deal with Ericsson a couple of years ago to buy Ericsson out of its troubled Access Business. The quid pro quo would be that Ericsson would use Calix as a partner and sell its Access Gear. This still might work out, but International was down in Q1 year over year. Since this deal was focussed first on International, it is somewhat troubling that growth has not happened. My view of this part of the business is different. Ericsson will act in its own best interest. There will be places that it makes sense for Ericsson to use Calix, but it certainly will not be a focus in most places. Access products are not high margin already and to have your Sales Team spend time selling someone else’s products in a high pressure sale makes little sense. Most selling in this market is costly as it takes a long time and dedicated people to cultivate a new customer. If the customer asks specifically about a product, you will pursue it. But spending Millions of Dollars to make someone else money is not going to happen.
On Tier 1 traction, nothing was said. That in itself speaks volumes. Remember companies need to announce “Material Events”. Signing a big contract with a large carrier would be a “Material Event”. A Material Event is one that is likely the financial results of a company in a meaningful way in the future. In Calix’s case, a contract that was worth $100M per year would definitely be a Material Event. What the Analyst is looking for instead is a wink and a nod that something is happening. But in reality, there is no way to signal such an event for Calix. I am sure they are talking to all the large carriers but things like this are binary events. They are either done or not done. Almost done is not done. The reason is that the competitors will have friends in the customer and things can slip away at the last moment.
Now that I have covered all of that, I want you to think about something. I know A LOT about the business that Calix is in. I see the dynamics of the business. I have friends who work there. I think I can make reasonable predictions about the future of the business, assuming no radical changes. But if you are an investor, how much do you know about the stocks you are investing in and the market the company participates in. How much do you think the analysts that you talk to know? Are you investing or are you gambling? I want folks to think seriously about that.
Have a great week!
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