2Q Vendor Financial Index: Highest Number in Low-Risk Category

Strong revenue outlook, high operating margins and other factors put Adtran, Brocade, Cisco, Infinera, and Juniper into low-risk category

ACG Research has released its 2Q 2015 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, Infinera 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. Medium risk were Alcatel-Lucent, Ericsson and Fujitsu.

Adtran has the highest equity to debt ratio (2.32) in the industry and financing its assets with more shareholders’ equity than debt. The company’s financial performance is predicted to improve in the second half of 2015 as a result of higher carrier expenditure in U.S. However, weakness in Europe will continue to impact Adtran’s revenue. Brocade’s operating margin is 20.9 percent, one of the highest in the industry. However, the company’s operating income decreased by 18 percent QoQ. Brocade’s growing data center presence, positioning as storage networking experts and innovation in software-enabled networking, will be the focus in 3Q15 as well. Cisco’s a very high operating margins because of sales, solid gross margin, improved productivity and expense discipline led to its operating income increased 4.3 percent YoY. Application Centric Infrastructure and APIC are predicted to be the cornerstone of the Cisco’s next generation of networking architectures. Infinera's operating margin (8.0 percent) is high compared to industry average, driven by cost decline because of vertically integrated model and improved services profitability. Revenue for 3Q15 is estimated at $215 M, a 30 percent YoY growth and will be mainly driven by continued acceptance of DTN-X. Juniper’s revenue was up 14.5 percent QoQ, mainly driven by better demand from its cloud and cable service providers. The company’s services revenue increased 7.4 percent on YoY. Juniper’s partnership with VMware will enable highly automated cloud data center solutions for both service provider and mission-critical enterprise network.

The same as last quarter, Ciena, Cyan and ZTE remain in the high-risk category. ZTE, healthy but fluctuating net cash ratio, has had Difficulty establishing presence in North America markets. The company will focus on three key markets in the second half of 2015: carriers, government and corporate sectors and consumers. Cyan has the lowest operating margin in the industry. The company suffers from lack of customer diversification and revenue is concentration in one company, Windstream, which represented 52 percent of its revenue; two other companies accounted for more than 10 percent revenue each. Ciena has very low net cash ratio at $(6 M) and has substantial segment of revenue continues to come from sales to a small number of service providers. However, higher spending on optical upgrades and increased international orders will positively impact revenue.

“This is the highest number of vendors in the low-risk category we have seen since we started tracking vendor financial ratios and launched this report,” says Ray Mota, CEO, ACG Research. “Network vendors are taking operational efficiency and sustainability more seriously and the numbers show that they are running more efficient companies.”

For more information about ACG Research’s Vendor Financial Index service or other syndicated and consulting services, contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com
www.acgcc.com