Shares in component vendor Avanex Corp. (Nasdaq: AVNX) shot up by more than 25 percent this morning, reaching $115.

The big boost in the company’s share price results from quarterly earnings announced yesterday (see Avanex Reports Record Q1 Earnings), which beat analyst’s forecasts by a substantial margin. It also results from an upbeat conference call with analysts, which indicated that Avanex is no longer so reliant on a single customer (Worldcom Inc.) and that the products on which Avanex’s future depends are starting to ship in serious quantities.

On the earnings front, Avanex reported fiscal first quarter revenues of $34.8 million, up 80 percent on the previous quarter and significantly better than the $24.2 million forecasted by Epoch Partners. Pro forma diluted earnings per share (EPS) was $0.03, beating the consensus forecast that Avanex would break even.

The big increase in Avanex’s revenue has also helped the company demonstrate that it’s not just WorldCom Inc. (Nasdaq: WCOM) that likes its products. Sales to Worldcom have increased, but now they only represent 60 percent of Avanex’s overall revenues, compared to more than 80 percent in the previous quarter, according to Walter Alessandrini, the company’s chairman and CEO. Fujitsu Ltd. (KLS: FUJI.KL), now accounts for 10 percent of sales.

Even more significantly, Avanex is now selling significant volumes of its PowerMux product, upon which much of its future is based. According to Alessandrini, the PowerMux and a similar product called the PowerShaper (which is still in pilot production) accounted for 40 percent of revenues in the last quarter, compared to 20 percent in the previous one.

This will come as quite a surprise to skeptics who’ve found Avanex’s claims for the PowerMux hard to swallow. Avanex has said all along that its PowerMux is in a class of its own when it comes to handling very large numbers of wavelengths in long-haul DWDM (dense wavelength-division multiplexing) systems. It claims to have demonstrated the PowerMux cramming 800 wavelengths into a single fiber and that further developments will slash costs to a mere $100 per wavelength in two years. Competing technologies such as arrayed waveguides and fiber Bragg gratings will cost several times this amount, it contends.

Now that Avanex is beginning to prove its case, its current market capitalization of around $7 billion looks more reasonable. It puts it in the same ballpark as component vendor New Focus Inc. (Nasdaq: NUFO), a more recent IPO with smaller revenues.

The recent events were enough to lead some Wall Street analysts to upgrade their forecasts.

“We recommend purchase of Avanex shares as one of the few public pure-plays in the optical components and subsystems sector,” Epoch says in a note issued late last night. On the basis of yesterday’s results, it’s raised its estimate of fiscal 2001 revenue to $192.8 million, from $134.4 million, and raised its estimated EPS for the same period to $0.25 from $0.09.

-- Peter Heywood, international editor, Light Reading http://www.lightreading.com