CNT Gets UMD Bounce

Computer Network Technology Corp. (CNT) (Nasdaq: CMNT), left for dead after heavy losses and layoffs three months ago, showed signs of life last quarter (see CNT Takes a Hit and CNT Reports $89M Revenue).

CNT reported revenue of $89 million, up 15 percent sequentially in a quarter when two of the three major switch vendors failed to gain. The company also posted a net profit of $237,000 or $0.01 earnings per share, after losing $5.5 million or $0.20 per share last quarter.

Results were far better than the Thomson Financial First Call consensus, predicting $78.9 million revenue and a loss of $0.08 EPS.

CEO Tom Hudson says the UltraNet Multi-service Director (UMD), on which CNT is building its future, had significant sales in its first two months of shipping (see CNT Ships UltraNet Director and CNT Stakes Claim on New Director. An OEM deal with IBM Corp. (NYSE: IBM) fueled early sales, and Hudson says CNT is talking to EMC Corp. (NYSE: EMC) and other storage vendors about similar deals (see IBM Confirms CNT Router and IBM Certifies New CNT Director). CNT acquired the UMD when it bought Inrange Technologies for $190 million last year (see CNT Walks Off With Inrange).

CNT product sales rose to $56.8 million, up 27 percent sequentially. That suggests CNT picked up market share on the three leading switch vendors. Brocade Communications Systems Inc. (Nasdaq: BRCD) posted 4 percent sequential growth, while McData Corp. (Nasdaq: MCDTA) was flat and Cisco Systems Inc. (Nasdaq: CSCO) declined 2 percent last quarter (see Brocade Tops Switch Sales, McData Merely Mediocre, and Cisco Storage Slips).We have returned to profitability,” Hudson told analysts on a conference call. Investors reacted positively. Bear Stearns & Co. Inc. upgraded CNT’s stock from underperform to peer perform today, and its stock price rose 17.08 or $0.82 to $5.62 by 11 A.M. ET today.

But are things really as good as they appear? Cost reduction figures in CNT’s return to profitability. CNT announced 220 layoffs (around 18 percent of its staff) in August. While CNT expects to see more savings from the layoffs this quarter, Hudson admits there won’t be much more cost reduction in future quarters.

And while CNT’s pro forma numbers showed a profit, it still lost $90.3 million when one-time charges are included for items such as goodwill impairment and costs to close a building related to layoffs. Even pro forma profits were down significantly from last year when CNT reported net profit of $2.3 million or $0.08 EPS. CNT's cash declined from $71.5 million to $57.9 million in the last quarter.

Hudson won’t provide guidance for this quarter, except to say it is traditionally a strong period. “I’m not willing to give you a long-term outlook beyond that,” he says.

— Dave Raffo, Senior Editor, Byte and Switch0