Shares of Extreme Networks fell 26 percent today, possibly on disappointment with the company’s forecast for the current quarter.
For its third quarter, which ends in March, Extreme expects non-GAAP earnings to fall between a loss of 1 cent per share and a profit of 3 cents per share. Analysts had expected a third-quarter profit of 3 cents per share, according to Thomson Reuters.
The March quarter is typically slow for Extreme and many other networking equipment vendors, but Extreme’s numbers apparently spooked investors. By the end of today’s trading, the stock had fallen $1.02 to $2.90, its lowest closing price since August.
Extreme didn’t deserve it, analyst Simon Leopold of Raymond James wrote in a research note today.
“We suspect the CEO’s upbeat tone before the report created excess optimism,” he noted. “We believe Extreme has fixed many internal aspects and has improved opportunities; this is against a challenging market backdrop.”
Extreme’s numbers for the second quarter, which ended Dec. 31, looked good, with revenues of $139 million and a net los of $7.2 million, or 7 cents per share. The results were near the top of the range Extreme had predicted for the quarter.
On a non-GAAP basis, Extreme reported a second-quarter profit of 9 cents per share, matching Thomson Reuters’ analyst consensus.
One product direction that Extreme finds promising is the bundling of Wi-Fi access points, wired switches, and services for enterprise customers. Bundled sales present better margin than piece-by-piece sales because of the amount of software involved, CEO Ed Meyercord said on today’s earnings call.
Extreme officials believe their best prospects for growth lie in those kinds of enterprise and campus products, more so than in the data center.
“Despite its exposure to the fast growing data center segment, management disclosed its lack of appetite for further penetrating this vertical, which is categorized as highly competitive and crowded,” Leopold wrote in December, following Meyercord’s appearance at a Raymond James investor conference.
Still, Extreme isn’t abandoning data center networks. Its ongoing work there includes a partnership with VMware‘s software-defined data center (SDDC) business, where Extreme’s NetSight network management is integrated with VMware’s vRealize suite.