Posted by Randy Kremlacek on Mar 4, 2013 2:36:00 PM
Shoretel Missed Their Numbers...Again
If you're a regular visitor to this blog, you know we've got issues with Shoretel. Specifically, we've got issues with their business model. They continue to lose money every quarter, continue to rely on proprietary technologies and continue to spend way too much on sales and marketing.
Give this little rant a listen and let us know your opinion.
What do you think? Is it lights out for Shoretel pretty soon?
This is Randy Kramlacek; TeleDynamic Communications is talking about the gory details of Shoretel’s double miss. For the quarter end of December 31st, Shoretel missed estimates on revenues and missed expectations on earnings per share. Compared the prior year quarter, revenue increased significantly, and the loss per share grew. Margins dropped across the board.
In fact, they dropped 6.6 percent, the gross margin alone, so either they’re dropping their prices or their costs are increasing. But their gross margins are definitely shrinking. They also reported in their quarterly report that they took as they call it “meaningful action to reorganize our sales organization to drive improved sales productivity.”
That’s telling me that sales aren’t where they need to be; they’ve got problems in that area of the business. In the last quarter ending December 2012 they had sales of seventy–five million dollars and compared to last year their R & D is shrinking as the percentage of the revenues from twenty–one percent of revenues to sixteen percent, so they’re spending less on development as they grow in size.
The number that really stands out, however, is their sales and marketing number which is a shocker; which is really the reason why I’m even ranting about this situation. Their sales and marketing expenses for the quarter were thirty–two million dollars, and again, sales were based in seventy–five million dollars. That’s forty – three percent of sales; almost half of their revenues is spent on sales and marketing expenses!
That’s just way out of line. And of course that goes to the bottom line; they had a ten million dollar loss. That’s a loss of thirteen percent of that seventy–five million, so they’re losing thirteen cents on every dollar worth of product that they sell. In summary, you know they’re still winning awards; they’re seen as leaders in unified communications. They just released a report that’s called the Net Promoters Score, and it’s a measure of customer satisfaction and they actually scored quite well.
But underneath it all, their fundamental flaws still remain. They’re spending well beyond their means. They’re able to pump up their sales and customer service numbers by artificially overspending to buy results. I mean, if profitability isn’t a concern, it’s easy to meet those other numbers; just spend, spend, spend.
Additionally their technology is still proprietary; it’s still locked down on the Shoretel. Heck even Shoretel telephones don’t work on their own cloud based PBX. That’s crazy. They have a very hardware intensive model with their PBX. They have licenses and servers for everything. And people these days are going the opposite, they’re slimming down, they’re virtualizing. They’re getting rid of hardware and going to software based solutions. Anyway back to the big picture, they continue to lose money. Every quarter since they were formed, since 1996, that’s thirteen years that they’ve been losing money. They just might set a record for the longest lasting startup company that’s never made a profit.
At some point, the music has gotta stop for Shoretel and either they have to start making a profit and run a legitimate business or I don’t know, maybe its lights out.
About the Author
President | Head Chef
Randy Kremlacek is president and Head Chef of TeleDynamic Communications and is a Digium Select Partner and 2013 Pinnacle Award winner. TeleDynamic Communications provides turnkey premises-based PBX and hosted PBX, SIP Trunking and Unified Communications. Randy Kremlacek prides himself on knowing the telecommunications industry as well as he knows his way around his own kitchen. READ MORE
Topics: Virtual PBX Competitors