Extreme Networks Inc. (EXTR) filed Quarterly Report for the period ended 2009-09-27.
Extreme Networks Inc. is a leading provider of a next generation of switching solutions that meet the increasing needs of enterprise local area networks internet service providers and content providers. The key advantages of its Layer 3 switching solutions are increased performance the ability to easily grow in size as customer needs change flexible allocation of network resources ease of use and lower cost of ownership. These advantages are obtained through the use of custom semiconductors known as ASICs in its products and through hardware and software designs. Extreme Networks Inc. has a market cap of $186.9 million; its shares were traded at around $2.1 with a P/E ratio of 42 and P/S ratio of 0.6.
Highlight of Business Operations:
Product gross profit in the first quarter of fiscal 2010 was $27.0 million, representing a decrease of $17.2 million or 39% from the first quarter of fiscal 2009. As a percentage of revenue, product gross margin decreased 6.2 percentage points. The decrease in product gross profit was primarily driven by lower sales volume of $9.0 million due to supply chain constraints, $10.7 million due to competitive pricing, higher excess and obsolescence costs of $0.7 million primarily related to excess component chips of specific products that are approaching end of life and higher warranty costs of $0.6 million related to a failure in one of our products, offset by a decrease of $3.8 million primarily related to distribution, lower royalty and lower operating expenses.
Our cost of service revenues consists primarily of labor, overhead, repair and freight costs and the cost of spares used in providing support under customer service contracts. Service gross profit was $9.7 million in the first quarter of fiscal 2010, an increase of $2.5 million or 35% from $7.2 million in the first quarter of fiscal 2009. As a percentage of service revenues, service gross margin grew 15.0 percentage points. The increase in service gross profit in the first quarter of fiscal 2010 was primarily due to lower repair costs due to improved quality, lower operating expenses due to cost controls and an increase in service maintenance revenue in EMEA. These items resulted in a $1.6 million increase in service gross profit. In addition, service gross profit was positively impacted by the use of written down inventory of $0.9 million. As we have now fully depleted the remaining balance of written down inventory in the first quarter of fiscal 2010, service gross profit is not expected to be positively impacted by this benefit in future periods.
Sales and marketing expenses consist of salaries, commissions and related expenses for personnel engaged in marketing and sales functions, as well as trade shows and promotional expenses. Sales and marketing expenses decreased to $21.6 million for the first quarter of fiscal 2010 from $25.9 million for the first quarter of fiscal 2009, a decrease of $4.3 million, or 17%. This decrease was primarily driven by lower commission expense of $1.5 million due to lower sales volume, lower salaries and wages of $1.4 million primarily driven by lower variable compensation expense and lower general sales and marketing expenses of $1.4 million due to cost controls.
Research and development expenses consist principally of salaries and related personnel expenses, consultant fees and prototype expenses related to the design, development and testing of our products. Research and development expenses decreased to $13.6 million for the first quarter of fiscal 2010 from $ 16.6 million for the first quarter of fiscal 2009, a decrease of $3.0 million or 18%. The decrease was primarily due to lower salaries and benefits of $2.0 million primarily due to lower headcount and lower variable compensation expense, lower project spending of $1.2 million on engineering projects, and higher stock based compensation. We expense all research and development costs as incurred.
General and administrative expenses consist primarily of salaries and related expenses for executive, finance and administrative personnel, legal fees, professional fees and other general corporate expenses. General and administrative expenses decreased to $7.2 million for the first quarter of fiscal 2010 from $8.4 million for the first quarter of fiscal 2009, a decrease of $1.2 million, or 14%. This decrease was primarily due to lower professional fees of $0.7 million, lower salaries and wages of $0.4 million primarily due to lower variable compensation expense and higher stock based compensation.
Other income (expense) net, was expense of $0.2 million in the first fiscal quarter of 2010 as compared to income of $0.5 million in the first quarter of fiscal 2009, a decrease in income of $0.7 million. The decrease in other income (expense), net was primarily due to $0.8 million fluctuation in foreign exchange losses from $0.6 million gain in the first quarter of fiscal 2009 to $0.2 million loss in the first quarter of fiscal 2010 as a result of the weakening U.S. dollar as compared to the EURO and other foreign currencies.
EXTR is in the portfolios of George Soros of Soros Fund Management LLC.
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