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Zhone Technologies Inc. Message Board

  • alakamuna alakamuna Jul 19, 2013 3:23 AM Flag

    What a remarkable day...

    I was busy with work and missed most of the fun and excitement. But needles to say that I am very happy how stock performed today, both in terms of volume and price appreciation. But it was the eventuality of days like this that we longs kept adding at lower and then at more lower prices. So in a way we are not all that surprised; we wanted this, expected this, and hoped for this.

    During the earning call we learned some remarkable pieces of information.

    Consider this: To generate first 1M in profits requires 30M in revenue, but for the second 1M in profit will require only 3M in revenue. As Kirk said that 97% of each incremental gross profit will go straight to the bottom line. That is some leverage!

    Mory provided a range of expected FiberLAN revenues in 2014: $20M to $40M. I read this to mean that as a minimum they expect to generate $20M in additional revenue through sales of FiberLAN product in 2014.

    Now lets apply that leverage to the expected revenue growth in Q3 and Q4 of this year, and to the expected growth in revenue in 2014 from FiberLAN.

    Lest assume 5% revenue growth in Q3 to a base of $30M. That amounts to $1.5 of incremental revenue in Q3, leading to $0.5M in additional profit. That is 50% Q/Q growth in profit. Same can happen in Q4. And if they did only $20M (lower end of their expected range) in additional revenue from FiberLAN in 2014, $7M of that should go straight to the profit line. This in not taking into consideration any additional growth in their core business, or their expectation of higher margin on FiberLAN sales.

    So when I realized this implication of what was stated at the earnings call, I had a strong feeling that we will go through $1.50 today fairly easily. I am sure stock price will continue to fluctuate, but on an overall basis we are headed up. Congratulations to all longs, this is very well deserved.

    Sentiment: Strong Buy

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    • Alak, congrats!

      Btw, what portfolio service are you using? it went through $1.50 some time ago :)

      I just wanted to comment that your numbers here are correct, based on the assumptions, but the way you described them are not accurate, or maybe confusing to some newbies here. What Kirk said is that for every revenue dollar over the break-even point, 97% of it should go to the bottom line (subtracting 3% commissions). Now products are not manufactured for free, there is a cost of goods sold, so with the gross margins being about 34-35%, that leaves us with 33-35 cents being added directly to net income (which corresponds to the numbers you used).

    • I guess I should of followed your lead at .80 but zhone already consumes 20% of my portfolio and that much was nerve racking enough. Im going to pick my spots and buy on the dips with my remaining cash right after I make one more move on INFN.

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