Meru sales hit by destocking at unnamed distie

Struggling WLAN vendor's Q4 sales artificially dragged back by 'lower than customary inventory levels at a European distributor'

Meru Networks' Q4 sales slump was exacerbated by changes to how one of its European distributors manages inventory.

In line with a warning from the wireless LAN vendor last month, Q4 net losses reached $5.2m (£3.4m) on revenues that sank 28 per cent to $21.8m as Meru was hit by a slowdown in spending among US schools and its core mid- to large-enterprise market.

However, Meru chief executive Bami Bastani said on a conference call the fact that revenues were also down 13 per cent sequentially were driven mainly by "lower than customary inventory levels at a European distributor".

Bastami did not reveal any details but according to our sources, Q4 was the first quarter in which one of Meru's major European distributors turned off end-of-quarter ordering as it moved to weekly ordering. This apparently left an – entirely artificial – seven-figure hole in the Q4 number.

Putting this aside, much of the sales slowdown can be attributed to the absence of business related to the US E-Rate programme, which aims to equip US schools with affordable internet access.

For the year as a whole, E-Rate revenues were down $17m on 2013, Meru said, although it added that it expects to enjoy its fair share of E-Rate funding when the next wave of projects start up in the second half of 2015.

Meru said it had also encountered a slowdown in high-bandwidth, high-density projects in the mid- to large-enterprise segment, which have traditionally accounted for the bulk of revenues.

To this end, Meru is ramping up its efforts in the SMB market, Bastani said.

"I'm excited to preview to you that [today], 10 February, we'll be announcing Meru XPress Cloud, a controllerless 802.11ac wireless LAN solution featuring cloud-based management that is purpose built for small to medium and distributed enterprises," he said on the call, a transcript of which can be found here.

For the full year, Meru posted a net loss of $14.4m on revenues that fell 14 per cent to $90.9m. It conducted more than 14,000 customer installations during the year.

Bastani highlighted a number of customer wins during Q4, including with existing customer University of Birmingham, which he said had chosen Meru due to the quality of its 11ac AP832 product and channel layer capabilities for high-density environments.

Some 4,000 UK schools have now deployed Meru, he said, claiming that it is adding another three to five UK schools every day.

"Despite these customer successes, we are disappointed with the overall level of sales in both the fourth quarter and the full year 2014. We have recently taken a number of steps to accelerate our return to growth and profitability," said Bastami.

Looking ahead, Meru said it expects revenues in its seasonally weak Q1 to fall between $15.5m and $18.5m.

Meru recently brought on board Deutsche Bank to explore its strategic options but reiterated that no timetable has been set for the completion of this process.