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ADSL rush breaks Netcomm dividend drought

ADSL rush breaks Netcomm dividend drought

Communications hardware provider, Netcomm, has declared it will pay shareholders a dividend for the first time since 1996 and for just the second time since listing on the ASX in 1994.

Netcomm's managing director, David Stewart, said the fully franked 0.5c per share it is paying for the recently completed financial year is a clear endorsement of its restructure and growth strategy. Investors responded well with the share price rising 45 per cent on the day that news of the dividend was announced.

Stewart said Netcomm would announce a net profit of more than $1.1 million at the end of August, significantly exceeding expectations. He nominated the surge in demand for broadband Internet services as the chief driver of Netcomm's good result.

"There has been a big increase in the sales of our broadband - or ADSL - modems," Stewart said. "Even though there has been a drop in prices, we have been able to boost gross profit by shipping large numbers.

"We now have in excess of 200 ADSL modem customers and we are shipping multiple thousands of units every month."

It has been a tough road for Netcomm in trying to shake off its legacy image of being just a modem company, according to Stewart, but he feels that it is now to be recognised as one of Australia's oldest and most successful technology manufacturers.

"We manufacture more than 80 products across six categories not counting all the accessories," he said. "Broadband products are leading the way but we are also getting growth from networking and communications products including the latest wireless, routing, high-speed networking and digital surveillance technologies.

"The overall business plan is to migrate the majority of sales to these newer products which have much higher GPs."

Interestingly, Stewart said analogue modems still contributed "about 50 per cent" of all sales.

"Modems are not dead," he said. "We are selling more than ever.

"We still sell a lot through all our traditional channels but there is also a whole new array of channels. We are now dealing with manufacturers of roadside signs, medical equipment, tracking equipment and other products that transmit data back to some sort of central location. These are non-IT channels and the margin there is better for these products than it is in the traditional IT channel."

Stewart also said Netcomm was expecting to see improved results from its wireless products going forward. Although it was in this space very early it has been sitting back waiting to see which standards were ratified before launching product ranges. With 802.11g having now been ratified it was launching a range of products this month.

"In this game, you can either be at the bleeding edge and take gambles on what is going to become the norm or you can be a little more conservative by waiting to see what wins out," he said. "It has been a successful strategy for us to be conservative and these days we only launch products for which there is a proven market."

Netcomm's hybrid channel model is also proving to be a winner for the company, according to Stewart.

It services major retailers, leading ISPs and large carriers directly while using Tech Pacific and Ingram Micro as national distributors for the majority of the dealer and independent retail markets.

Netcomm also has strong regional distributors, such as BBF in Victoria and Server Bits in Queensland, as well as close relationships with major OEM assemblers.

"We have restructured our channel relationships over the last 12 months and we think we now have the right mix," Stewart said.


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