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    TTeelleeccoomm VVeennddoorrss’’

    FFiinnaanncciiaall IInnddeexx && PPeerrffoorrmmaannccee MMoonniittoorr QQ11 22001133

    Summary In addition to technology, CTOs and CIOs

    must have independent information about

    the sustainability of a vendor/company to

    assess the risk of selecting the right vendor

    to meet their business requirements and to

    ascertain a risk level on the stability of the

    vendor regardless of technology


    ACG Research’s Index tracks the vendors’

    current state and which are trending up or

    down: Adtran, Alcatel-Lucent, Brocade,

    Ciena, Cisco, Ericsson, Fujitsu, Infinera,

    Juniper, Tellabs, and ZTE.

    The performance scores are calculated using

    15 ratios and Z scores, subdivided into four

    categories: sustainability, technology,

    operational and marketing; the data

    originates from annual reports, and

    quarterly filings.

    The index examines standard financial ratios related to profitability and liquidity, which are validated by Wall

    Street. An average of all ratios across all vendors was defined as the “index.” The goal of the index service is to

    create an industry baseline that takes all of the vendors in targeted sectors and creates an industry average to

    determine vendors’ risk levels.

    Company Rating (Risk)

    Risk Score*

    Receivable Efficiency


    Equity to Debt Ratio

    Net Cash (in


    Operating Margin

    R&D Potential


    Adtran Low 4.08 1.74 3.35 201.88 4.6% 0.7%

    Alcatel Lucent High 8.55 1.25 0.11 428.34 -5.5% 15.8%

    Brocade Medium 5.08 2.25 1.78 167.33 10.6% 2.0%

    Ciena High 9.85 1.21 -0.05 (753.53) -2.1% 2.0%

    Cisco Low 0.00 2.47 1.41 34,430.00 24.1% 31.3%

    Ericsson Medium 5.00 0.80 1.04 7,243.00 4.1% 24.5%

    Fujitsu Medium 6.04 1.50 0.43 (2,718.96) 6.8% 10.9%

    Infinera Medium 8.00 1.11 2.23 145.11 -12.0% 0.6%

    Juniper Low 3.11 1.99 2.54 1,657.80 8.2% 5.3%

    Tellabs High 9.59 1.05 1.89 584.20 -29.0% 1.1%

    ZTE High 10.00 0.41 0.30 1,512.28 -1.3% 5.8%

  • 2

    Company FCF to CFO

    Ratio Future

    Revenue Ratio

    Future FCF Ratio

    Inventory Turnover


    Revenue to Fixed Assets Ratio

    Services to Products


    Altman Z- Score

    Adtran 0.97 1.08 0.71 0.77 1.84 NA 5.7

    Alcatel Lucent 0.55 1.08 -0.97 1.15 2.86 0.48 -0.7

    Brocade 0.89 0.96 0.50 3.87 1.08 0.19 1.8

    Ciena 0.79 1.04 0.37 1.20 4.32 0.23 -3.4

    Cisco 0.91 1.02 1.12 3.20 3.67 0.28 2.6

    Ericsson 1.40 1.07 -1.08 1.19 4.53 0.70 2.4

    Fujitsu -0.15 0.71 5.60 2.75 2.18 1.00 0.9

    Infinera 1.23 1.07 0.68 0.63 1.62 0.15 2.3

    Juniper 9.03 1.03 -1.90 7.18 1.26 0.35 2.0

    Tellabs 1.57 1.00 -1.17 1.22 1.00 0.27 1.9

    ZTE 1.22 1.34 -0.11 1.15 2.19 NA 0.8

    *Risk Score is a weighted average of all the ratios.

  • 3

    Sustainability Rating

    Company Summary



    Positive operating margin: 4.6%, above the industry average.

    Good receivable efficiency ratio: 21%, above the industry index.

    Strong domestic carrier business. Deutsche Telekom and AT&T opportunities will accelerate growth.


    R&D potential one of the lowest.

    One of two vendors with lowest inventory turnover ratio; risk of obsolescence.



    High R&D potential ratio: 15.8%.

    Higher services to products ratio: 0.48; 30%, above the industry average.

    High fixed asset utilization.

    Highest future revenue growth estimate (8.4% QoQ) for next quarter. Weaknesses:

    Worst revenue downfall: -23.6 QoQ.

    Low inventory turnover ratio; increased risk of inventory obsolescence.

    Lowest equity to debt ratio; relying more on debt puts future operations at risk.

    Lower volumes in traditional wireless and core networks impacted 1Q13.

    Receivable efficiency ratio below industry index, indicating lack of receivables efficiency.



    Operating margin: 10.6%, second highest in the industry.

    Good inventory management practice. Inventory turnover ratio above the industry average.

    High receivable efficiency ratio: 2.3, implying efficient collection of accounts receivable mainly from sales to OEM partners.

    Healthy equity to debt ratio; consistent growth of equity and shrinkage of total debt.


    Revenue declined in two main business segments: Storage Area Networking (-10% QoQ) and IP Networking (-4% QoQ).

    Low service to product revenue despite 12% QoQ increase.

    R&D potential is among the lowest in the industry.

    Fixed assets not being leveraged. Low revenue to fixed assets ratio yielding only $1.1 for each fixed-asset dollar.

    Focus substantial resources on the IP Networking market; may negatively impact other businesses such as its SAN products.

    Customer concentration: EMC, HP, and IBM, which accounted for 45% of total net revenues.



    Very high revenue growth: +12.1%.

    High fixed asset utilization and leveraging. Less money tied up with fixed assets for each unit of currency of sales revenue.


    Although operating income significantly increased, operating margin is below the industry average.

    Financials closely correlated to a small number of customers.

  • 4

    R&D potential (2%) is among the lowest in the industry.

    Lowest value of equity to debt ratio in the industry; high dependency on debt.

    Inefficient inventory management. Recorded provision for excess and obsolescence of $9M.

    Cisco Systems


    Most stable revenue and very high operating margins because of sales, solid gross margin, and expense discipline.

    Strong focus on operational efficiency in manufacturing operations.

    Highest R&D potential; allocated more than $1.3B to R&D each quarter in past two years.

    Highest receivables efficiency ratio: 2.5. Aligned credit policy.

    Effective asset utilization yielded $3.7 for each fixed-asset dollar.

    Dependency on debt is low. Can acquire less expensive loans. Weaknesses:

    High service revenue but still below the services to products revenue ratio average of the industry. Services revenue growth was lower following slower product order growth over the last few quarters.

    Potential exposure to decline in profit margins because of market transitions related to virtualization trends.

    Weak presence in emerging markets, for example, China.



    Historically, net cash has been above the industry average. Strong cash position.

    Efficient management of cost of sales, R&D expenses, and SG&A expenses.

    Highest revenue to fixed assets ratio yielding $4.5 for each fixed-asset dollar.

    Strong development in Managed Services, Mobile Broadband, 4G/LTE, SSR Routing, and OSS/BSS service contracts.

    Very high R&D potential. Allocated $1.2B in 1Q13 to R&D. Strongest holder of patents in the wireless industry.


    Financials strongly correlated to 10 largest customers (46% of revenue) and indicate a potential risk factor.

    Low R&D Ratio. Expects that in 2013, R&D expenses will decrease. North American market penetration is low.

    Receivables efficiency is 40% below the industry average; in 1Q13, trade receivables exceeded revenues by $2B.

    Financials strongly correlated to a few largest customers.



    Steady and positive revenue growth averaging +0.4% QoQ in the last two years; for the industry, this average -0.1% QoQ.

    In-advanced inventory planning designed to cope with environmental contingencies in Japan and overseas.

    End-to-end global portfolio (cloud computing, services, products, and solutions) that draws on the strengths of its global bases.

    Service delivery model with price competitiveness that leverages its Global Delivery Centers and Regional Delivery Centers, lowering OpEx.

    Healthy control of receivables with respect to sales; significant increase of receivables efficiency ratio of 1.5, in 4Q12, above the industry average.


    Has a cyclical quarterly sales pattern. 1Q sales dropped 25% QoQ.

    Very low equity to debt ratio value in 4Q12 with debt 2.3 times that of equity. Higher financial obligations limit vendor's future operational capacity.

  • 5

    Historically, Fujitsu has had a receivable efficiency level below the industry average.



    High equity to debt ratio. In 1Q13, equity represented 2.2 times the total debt.

    One of the highest R&D potential (24% in 1Q13) in the industry.

    100G DTN-X pipeline is strong across multiple segments and geographies. Value- added features of its 100G solutions have made its DTN-X system attractive to a wide range of potential customers.


    Revenue dropped because of sales contraction in the Amer

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