ACG Research has released its 4Q Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.
Low-risk vendors for the quarter are Adtran, Brocade, Cisco, and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio. Adtran’s growth with the Deutsche Telekom and AT&T opportunities and improved spending by carriers is projected to accelerate the company’s revenue 10% in 2014. Brocade, which was in the medium-risk category in 3Q, is now in the low-risk category because of solid operating margin, high receivable efficiency ratio, good inventory management practices and healthy equity to debt ratio. Although Cisco’s revenue is projected to decline in the fiscal calendar year, the company is aggressively pursuing major technology developments, including Internet of Everything and SDN. The question is how long will the transition take? Juniper has posted its sixth consecutive quarter of YoY growth and is focusing on improving operational execution and managing costs.
Of note in 4Q:
- Adtran claims the highest Altman Z-Score in the industry: 7.3
- Brocade had the highest receivable efficiency ratio: 2.59
- Cisco posted the highest R&D potential: 28.7%
- Juniper has a high receivable efficiency ratio: 2.20, compared to industry average
Cyan, Ciena and ZTE are high risk, which is characterized by low inventory turnover ratio, revenue decreases and low value of equity to debt ratio. Cyan, with one of the lowest operating margin in the industry, is dependent on a few customers (Windstream contributed 39% revenue). A substantial segment of Ciena’s revenue continues to come from sales to a small number of service providers. ZTE has the lowest receivable efficiency ratio in the industry, indicating significant risks associated with the credit policy and finances.