Extreme sales force under pressure

Ethernet equipment vendor Extreme Networks reported what it called a disappointing fiscal third quarter (ended March 31), blaming its problems partly on a shortage of sales staff and vowing to fill that vacuum as soon as possible.

"This quarter was a disappointment to us," said Extreme CEO Gordon Stitt. "We're working hard to do better."

Extreme reported $85.5 million in revenue for its third fiscal quarter, barely topping the range of $84 million to $85 million it projected earlier this month, when it lowered its guidance for the quarter. The company's $33.9 million in U.S. revenue, though up 6% sequentially, was lower than it had anticipated.

After failing to meet its own internal staffing goals last quarter, Extreme has now enlisted a dedicated recruiter to help it fill out its workforce. The company is still searching for a vice president of North American sales, which it hopes to name before its next earnings report. It ended March with 820 employees, 15 fewer than it had at the end of December. The number of quota-carrying sales representatives (a population in the range of 10 or 20 employees) is relatively unchanged since December, Stitt said.

The company's near-term success will depend in large part on how quickly it can fill its sales staff and get new employees up to speed, Extreme's Chief Financial Officer Bill Slakey said.

Stitt was also disappointed in Extreme's performance in the U.S. federal government market during the quarter. Though the company recently appointed a new leader for that business, Stitt said, "it will take more than one or two quarters…to build up the pipeline."

Stitt also promised new channel partnerships in the U.S. this year. "This year you'll see us announce a series of partnerships with other companies," he said. "We're signing up new resellers and putting in stricter rules for reseller certifications. A year from now, our reseller base will be somewhat different than it is today."

Extreme also blamed its quarterly results in part on Japan, where the company's revenue sank about 30% sequentially to less than $8 million.

As usual, service providers contributed a quarter of the company's revenue while enterprises contributed the other three quarters. But March brought Extreme its first revenue from the highly scalable Black Diamond 12000 carrier Ethernet platform it introduced a month earlier. It was purchased by carriers, largely for residential IPTV applications, which represents a new market for Extreme.

Extreme also reported disappointing results three months ago, which one analyst attributed to "unpredictable sales execution."