ACG Research’s 2Q Vendor Financial report
indicates that Adtran, Cisco and Juniper have the lowest risk of 11 vendors
analyzed.
Using publicly validated financial
data as input, ACG Research calculated 11 sustainability and operation ratios and
Altman Z-Score to determine 11 vendors’ financial
risk. Based on the score, vendors were segmented as low risk, medium risk or
high risk. Vendors falling into the low risk segment are Adtran, Cisco and
Juniper.
What makes a company low risk?
These companies have high operating margins, solid revenue, and high equity to debt
ratio. They also have stable revenue sources and operating margins because of
sales, solid gross margin, and expense discipline. These companies continue to
increase momentum with new product offerings, acquisitions as well as refining
their strategy of innovating in high-performance networking.
High risk vendors are
characterized by low receivable efficiency, low operating margin and financing
assets with more debt than equity. Their ratios indicate that their business
practices, for example, in extending credits and collecting debts, are less
efficient than their competitors. They also have low inventory turnover, indicating
inefficient inventory management. Investments in research and development also tend
to be low.
Why is assessing risk important
to a provider? Technology, although important, should not be the only criteria
by which to judge a vendor. Sustainability of a vendor is equally as important
for making a business decision. Knowing a vendor’s sustainability gives
providers one more piece of information to assess the risk of selecting the right
vendor to meet their current and most importantly their future business
requirements. It also allows providers to make decisions based on the stability
of the vendor regardless of technology innovations.
For more information about ACG’s Telecom Vendor Index service, contact sales@acgresearch.net.
