October 21, 2010 / 8:28 PM / 7 years ago

UPDATE 3-Polycom weathers competition; sees strong Q4 rev

* Q3 adj EPS $0.38 vs est $0.35; Q3 rev tops estimates

* Voice business up 31 pct; video solutions up 25 pct

* High-margin network systems business up 31 pct

* Sees Q4 rev up 5-7 pct up from Q3

* Shares up 4 percent (Adds Q4 outlook from conference call, updates shares)

By S. John Tilak

BANGALORE, Oct 21 (Reuters) - U.S. video conferencing company Polycom Inc PLCM.O forecast market-topping revenue for the fourth quarter, showing it was holding on to its turf in an increasingly crowded market.

For the fourth quarter, Polycom forecast a 5-7 percent rise in revenue from third-quarter levels. That would work to revenue of $323.4-$329.6 million, ahead of analysts’ expectations of $318 million.

The company, which beat third-quarter profit estimates helped by strong growth at both its voice and video businesses, sees fourth-quarter gross margins remaining consistent with margins in the previous quarter.

Polycom, whose main rival is Cisco Systems Inc (CSCO.O) unit Tandberg, has beaten or matched profit estimates for the last eight quarters. (Graphic: r.reuters.com/duk69p)

Video conferencing, which gained visibility during the economic downturn when companies preferred it to face-to-face meetings to cut travel costs, is now used more widely than ever.

Companies such as Avaya Inc [AVXX.UL], Hewlett-Packard Co (HPQ.N) and Logitech LOGN.VX are offering the service.

“It’s definitely a competitive environment, but Polycom’s holding its own,” William Blair analyst Jason Ader said.

    “The voice side of the business is the unsung part of the company that continues to show good numbers.”

    Voice communications grew 31 percent in the quarter while video solutions grew 25 percent.

    The company’s high-margin network systems unit, a part of the video solutions business, grew 15 percent sequentially and 31 percent year-over-year.

    Second-quarter network systems revenue had dropped 6 percent sequentially, sending Polycom’s shares down 10 percent on July 16.

    “The important piece is their network systems revenue. That’s been a sore point for investors,” Gleacher & Co analyst Stephen Patel said.

    Third-quarter net income rose to $17.3 million, or 20 cents a share, from $13.7 million, or 16 cents a share, a year earlier. Excluding items, earnings were 38 cents a share. Revenue rose 27 percent to $308.1 million.

    Analysts expected earnings of 35 cents a share, excluding exceptional items, on revenue of $301.9 million, according to Thomson Reuters I/B/E/S.

    Polycom shares were up 4.3 percent, or $1.26, at $30.60 in trading after the bell. They closed at $29.34 Thursday on Nasdaq. The stock has gained 15 percent since the start of the year, outperforming an 8 percent rise in the broader S&P 1500 Technology Hardware & Equipment industry group index .15GSPTEHW. (Reporting by S. John Tilak; Editing by Don Sebastian and Maju Samuel)

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