Polycom cuts outlook, plots a fix

After a disappointing first quarter, Polycom moved to cut its second quarter outlook too. However, CEO Andy Miller said the company is working on plans to return to growth.

The unified communications (UC) company reported first quarter earnings of $15 million, or 8 cents a share, on revenue of $367 million. Non-GAAP earnings were 22 cents a share. Those results were in line with Polycom's preannouncement.

However, the outlook for the second quarter was also light. Polycom projected second quarter non-GAAP earnings of 20 cents a share to 22 cents a share with revenue between $367 million to $377 million. Wall Street was expecting second quarter earnings of 25 cents a share on revenue of $387.3 million.

On a conference call, Miller outlined what went wrong. He said that government spending in China, Australia, India and the U.S. all slowed. In addition, Polycom said that sales of endpoint products are slowing in favor of so-called "solution selling." As a result, Polycom has to revamp its salesforce.

Miller said:

We saw customers pause to consider more UC centric strategies, versus point product for endpoint only deployments. We believe this transition has many positive benefits for our company over the longer term but clearly created softness in Q1.

He added:

Individual transactions are becoming multi-phase rollouts over time. Standalone sales opportunities become larger when they our partner enabled. And importantly, you see solutions and specifically video are moving beyond a traditional cost savings mechanism to a business process acceleration opportunity.

Polycom's fix-it plan now looks like this:

1. Focus on big Global 1000 accounts in sales.
2. Rev up vertical market focus and lead generation.
3. Deploy UC into more services outfits.
4. Tighten up Polycom's partnership with Microsoft on Lync.
5. Roll out new products for cloud delivery, focus on open standards and be cross platform.