First Albany Corp. today downgraded CNT from Strong Buy to Buy because of the lack of visibility on revenue. CNT -- which sells devices that extend storage traffic over wide-area networks, including IP -- has been trying to diversify its revenue by expanding its storage services business via the acquisitions of services firms Bi-Tech and Articulent (see CNT Acquires BI-Tech and CNT Waits for SAN Tide to Rise).
But these additions haven't been enough to smooth out its quarter-over-quarter revenue, says First Albany analyst Mark Kelleher. "Unfortunately, despite a sharp uptick in deferred revenue attributable to these service opportunities, the company appears to be unable to dampen the sharp seasonal down-tick in its April quarter," Kelleher wrote in a note to investors. Kelleher lowered his revenue estimate for calendar year 2003 to $240 million from $280.6 million previously, and his earnings estimate to $0.14 per share from $0.19 per share.
On the plus side, however, he says in spite of the short-term revenue instability the company's prospects look somewhat promising for 2003 -- based on strong results from CNT's UltraNet storage router and gateway products in the quarter, improving gross margins, and recent cost-cutting moves.
CNT said it ended the quarter with a backlogged $13.7 million, and it expects $8.7 million of that will be accounted for as revenue in the next year. The company said its spike in deferred revenue was primarily due to maintenance contracts, which are signed one year in advance. "The majority of our customers -- 47 percent -- had their contracts on January 31 renewal," said Greg Barnum, CNT's CFO, on a conference call.
Tom Hudson, CNT's chairman, president, and CEO, said the company has several new product initiatives underway that are expected to start generating revenues in 2003. One is related to "large-fabric environments," and another is geared around storage resource management (SRM) software.