Calix can be considered as an internet platform business that provides a broad width of internet, cloud and software services for other businesses. Business-To-Business (B2B) markets are typically affected first by early-stage economic slowdown as liquidity tightening creates an extra incentive for businesses to cut internally on costs before changing to more drastic measures which include hard cuts on projects, price rises or reorganizations. Therefore, Calix proves that its products are not only vital for business infrastructure and widely appreciated but also are competitive enough to compete in this highly technological innovative space.
How Does Calix Inc. Manage To Stay Competitive?
By outsourcing manufacturing and warehousing to third parties Calix Inc. strategy is less vertically integrated as is more typical for larger provides. Using this business strategy the company is more flexible which makes it easier for the company to react to changing market circumstances. In case of falling revenue this strategy is successful at lowering the impact. However, this strategy does create a dependency on third parties which can decrease negotiation power over these essential services within the business chain. Main competitors A10 Networks, Inc., NETGEAR Inc. (NTGR), Viavi Solutions (VIAV) and Ribbon Communications (RBBN) have had much lower revenue growth over the past years. While all other competitors see a slowdown or drop in revenue, Calix Inc continued to grow quarter-over-quarter in Q2 2022, the upward trend does not seem to hold back the Broadband Service Provider (BSP). The 25th of October Q3 results will get published and it remains to be seen if the business trend continues in these difficult market circumstances, both from demand and supply side as low liquidity and continuous supply chain disruptions remain troubling businesses all around the globe.
Reasonable Board of Director Salaries And Stock Options
Typical in fast-growing tech companies, directors often overly compensate themselves in terms of pay and stock grants. However, in this case long-time CEO Carl Russo shows that his determined and focused long-term strategy is not diluted by potential short-term benefits. In the extremely competitive workforce recruitment climate of Silicon Valley, Carl Russo stays calm despite the rising stock price which provides an opportunity to grant higher pay across the board. The dropping burn rates of outstanding shares is an indication that Calix Inc. has a clear vision to grow further. The relatively low employee turnover rates are another sign that the Calix Inc. work environment is effective at maintaining talents, experts and directors within the company, helped by stock-based compensations.
Relatively Low-Spending On R&D May Affect Future Growth
Under the current tightening financial circumstances and the dropping cash reserves, the company may find itself in a position in which it has to dilute its current outgoing shares, as issuing new shares may be vital to establish continued growth without requiring to increase credit expenses due to higher interest rates in the overall corporate bond market. Considering the current ratio, this risk is relatively low. However, a 16% spending of total revenue on R&D is slightly on the low side but this is also affected by the fast revenue growth so it requires some time to adjust this spending.
Overall this stock looks like it is a great pick among the lagging technological growth stocks that are suffering under current circumstances. For risk-averse investors it remains advisable to wait for Q3 results to make sure Calix is in fact less affected by current market circumstances than other peers.
Disclaimer: The writer of this article holds Calix Inc. (CALX) stock, this article should not be interpreted as investment advice or anything like that.