February 13, 1997 4:45 PM PST

Numbers don't save PictureTel

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In the world of corporate earnings, sometimes no news is good news.

PictureTel (PCTL), a provider of videoconferencing and multimedia collaboration, today saw its stock dive as much as 19 percent in trading today to close at 15-7/8, down from yesterday's close of 18-9/16. PictureTel's stock also hit its 52-week low, which previously had been 17-1/8 a share.

This despite the fact that PictureTel exceeded analysts' expectations when it reported yesterday a 38 percent rise in fourth-quarter net income to a record $9.9 million, 28 cents per share, compared with $7.2 million or 20 cents a share for the fourth quarter of 1995.

Wall Street was expecting the company to report 26 cents a share, according to First Call.

The company also reported its revenue grew 37 percent to $140.1 million, a record high, as compared with $102.0 million for the corresponding quarter a year ago.

What part of this good news could pack such a negative punch? It seems to be the Intel syndrome--where executives' cautious outlook sends investors running despite record earnings. (Intel is an investor in CNET: The Computer Network.)

Investors want the immediate gratification of a strong quarter, but they also expect those records to continue. That's not always possible.

"While 1996 was a record-setting year for PictureTel and we expect to see strong revenue growth in 1997, the company believes growth will be at a somewhat slower rate than in previous years," said Dr. Norman Gaut, PictureTel's chairman and CEO, in a statement.

It is typical for companies to report better fourth-quarter results over their first quarters, because they want to end the year on a high note, said Advest Group analyst Herbert Maher.

Toward the end of the quarter, PictureTel introduced its new portable videoconferencing system, SwiftSite.

"Sales were fabulous [from Swiftsite], and I recommend the stock, but not for a quick bounce. The company had a really great 1996, but the first half of '97 will be a transition year. Growth and momentum are important but will take a hit," said Maher.

Maher explained that management is talking about increasing research and development to expand into the growing arena of videoconferencing over the Internet. Other analysts agree that is a move in the right direction.

"PictureTel has been doing quite well with SwiftSite, but videoconferencing is going to drop off because of the development of conferencing online," said Dataquest analyst Sujata Ramnarayan. "These products that produced revenue for them this past quarter will continue to do well, but with the cost around $8,000, it is not something that is affordable."

PictureTel's net income and revenue for full-year 1996 results also hit record highs. Net income rose 77 percent to a record $34.8 million, or 96 per share, compared to $19.6 million, or 56 per share, for 1995. Total revenues were $482.5 million, compared to $346.8 a year earlier.

The company attributes strong growth to the introduction of SwiftSite in October, as well as worldwide expansion.

"Another important component of our success was our ability to deliver our products and services to customers in new world markets," added Gaut. "In 1996, we added sales offices in countries ranging from Brazil, China and Italy to Korea, Malaysia, and Singapore.

 

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