(Recasts, adds analyst's comments, outlook, conference call details, updates share movement)
By S John Tilak
BANGALORE, July 16 (Reuters) - Polycom Inc PLCM.O, which makes video conferencing products, reported quarterly profit that missed market estimates and posted lower gross margins, hurt by slow growth at its network systems segment, sending its shares down almost 7 percent after the bell. Sales at network systems, its highest-margin business, fell nearly 10 percent to $28 million in the second quarter.
However, revenue jumped 16 percent, beating market estimates, as the company benefited from growth at its video communications services segment.
"It's not a disaster. It's not a blow-out. They did a little better on revenue, a little worse on EPS," Wedbush Morgan Securities analyst Scott Sutherland said.
The analyst said he was concerned about Polycom's gross margins, which fell to 58.5 percent. Sutherland was looking for 59.3 percent.
Pleasanton, California-based Polycom has been targeting gross margins of 59 percent to 66 percent.
For the third quarter, the company expects revenue to rise 3 percent sequentially. The forecast implies revenue of $279.7 million for the current quarter, ahead of analysts' average estimate of 272.6 million.
It expects gross margins of 59 percent for the quarter, Chief Financial Officer Michael Kourey said in a conference call with analysts.
Second-quarter net income rose to $17.8 million, or 20 cents per share, from $10.1 million, or 11 cents per share, a year earlier. Revenue rose 16 percent to $271.6 million.
Excluding items, it earned 35 cents a share.
Analysts expected earnings of 36 cents a share, excluding exceptional items, on revenue of $265.5 million, according to Reuters Estimates.
Sales at its video communications services division rose nearly 25 percent to $141.2 million. It made up about 52 percent of total revenue in the quarter.
Polycom and Norway's Tandberg TAA.OL dominate the worldwide video-conferencing market.
Wedbush's Sutherland said Tandberg has been gaining market share in the close head-to-head battle, adding that the two companies control 80 percent to 90 percent of the video conferencing market.
Tandberg on Monday posted quarterly earnings that met expectations, while revenue grew at the high end of analysts' forecasts. [ID:nL1466971]
Polycom shares fell to $22.60 in trading after the bell, after closing at $24.34 Wednesday on Nasdaq. (Editing by Deepak Kannan, Himani Sarkar)