Boston, MA 08/18/2014 (wallstreetpr) –Network infrastructure equipment and services provider Extreme Networks, Inc. (NASDAQ:EXTR) chief financial officer Ken Arola expects that the company would be able to deliver gross margin of 55% in the first quarter of the next fiscal year. The comments come on the heels of the company delivering GAAP and Non-GAAP gross margin 53.4% and 56.9% respectively in the fourth quarter.
Gross Margin
During a conference call to discuss its earnings results, a number of analysts from different brokerages have raised the question of gross margin. Extreme Networks, Inc (NASDAQ:EXTR)’s CFO told Wunderlich Securities analyst, Matt Robinson, that though it was confident of maintaining its pricing better than it had initiated expected the company was anticipating some sustained pricing pressure in the marketplace.
Secondly, the fourth quarter results benefited from accounting policies between the extreme business and the enterasys business. This apart, the combing of the two firms as one consistent policy for some of its cost of goods sold areas also drove the margin higher during the fourth quarter. The analyst had pointed out that the margin outlook was weaker than the fourth quarter, and the management responded to his question.
While Extreme Networks, Inc (NASDAQ:EXTR)’s CFO said that it was a one-time benefit, the analyst wanted to quantify the impact for which the CFO disclosed that it could have been close to half a point. The CFO had also said that still there was enough room to improve its gross margin.
Operating Margin
Commenting on the operating margin, the company’s president and CEO, Chuck Berger, said that he expects to deliver 10% operating margin on an annualized basis in the coming periods. The company was also looking to achieve 10% revenue uptick.
During the fourth quarter, Extreme Networks reported non-GAAP operating margin of 7.2%, down from 8.2% in the year-ago quarter while its GAAP operating margin was a minus 8.7% compared to 3.7% in the previous year quarter.
The management’s comments on the two vital parameters assume importance since it would provide enough hints as to how its earnings performance can shape up in the coming quarters.
