& cplSiteName &

Ikanos Catches VDSL Blues

Craig Matsumoto
News Analysis
Craig Matsumoto
10/5/2006
50%
50%

Shares in DSL chip vendor Ikanos Communications Inc. (Nasdaq: IKAN) fell off a cliff this morning after the company lowered its third-quarter and fourth-quarter earnings estimates yesterday.

Ikanos shrank its third-quarter forecast to the range of $36 million to $37 million, compared with the firm's previous forecast of $40 million to $43 million. Worse, the company said its fourth-quarter revenues would fall even further, landing between $24 million and $26 million.

Ikanos stock was down $3.52 (32.2%) at $7.42 in morning trading.

What went wrong? All sorts of things. First, Ikanos had trouble with its new, fifth-generation VDSL products. During a conference call with analysts yesterday, Ikanos officials said the new chips had manufacturing problems, creating delays in shipping.

As for that troublesome fourth-quarter number, it's the result of order delays all over the place, although Ikanos insists all the problems are temporary.

Carriers in Japan are working through their equipment inventory, Ikanos officials said -- meaning there's an oversupply that will decrease demand from that country during the fourth quarter.

"Carriers in Japan tend to purchase more equipment than deployed and adjust for the surplus equipment in one particular period," CFO Daniel Atler said on the call. "In Japan, we think this is largely over with at the end of Q4," he later added.

Japan accounted for 37 percent of Ikanos's revenues, more than any other region, in the quarter ended June 2006 -- so a hiccup there means a big headache for the company. Korea and France ranked second, at 26 percent each. And Ikanos indicated that Korean sales might slow during the fourth quarter as well.

VDSL rollout delays in Europe will add to Ikanos's fourth-quarter troubles, analyst Anton Wahlman of ThinkEquity LLC wrote in a report this morning. He thinks this stems from regulatory issues -- specifically, the possibility that European carriers will be forced to lease infrastructure to competitors.

Wahlman didn't give specifics, but yesterday, Dutch regulator OPTA released a report suggesting regulations that would force carrier KPN Telecom NV (NYSE: KPN) to open its network to rivals, or at least let them lay fiber next to its own.

Speaking on the earnings call, Ikanos CEO Rajesh Vashist said KPN was pushing back its VDSL deployment plans. "That was significant for us because we were expecting to ship both CO and CPE into those areas," Vashist said.

Want more? How about this: Ikanos was working with Chunghwa Telecom Co. Ltd. (NYSE: CHT) on a deployment in Taiwan -- and that's been delayed, too, according to Vashist. "All the factors have sort of come together in Q4. The only place where we have not seen delays is in the United States."

Wahlman still considers Ikanos a cheap buy. And he expects the company to continue expanding beyond DSL, following up its purchase of gateway chips from Analog Devices Inc. (NYSE: ADI) early this year. (See Ikanos Goes for the Gateway.)

"We continue to believe Ikanos is likely to make more acquisitions to broaden the product appeal. In particular, we believe FTTH is the key target," he wrote, citing BroadLight Inc. , Centillium Communications Inc. , and Teknovus Inc. as the top candidates.

Ikanos went public about a year ago and enjoyed the same run-up that boosted most tech stocks, peaking at $24.97 early this year. It's been mostly downhill from there. (See Ikanos Prices IPO .)

Ikanos becomes the lastest chip company to issue an earnings warning this quarter, following Hifn Inc. (Nasdaq: HIFN), Marvell Technology Group Ltd. (Nasdaq: MRVL), PMC-Sierra Inc. (Nasdaq: PMCS), and TranSwitch Corp. (Nasdaq: TXCC). (See Hifn Lowers Q4 Forecast, Feeling Less Marvell-ous, PMC Lowers Forecast, and TranSwitch Lowers Forecast.)

The third calendar quarter is traditionally weak for the sector, analyst Tim Kellis of Stanford Financial Group points out. Moreover, the runup in semiconductor business early this year led to an inventory oversupply, a typical occurance in the chip world that often culminates in revenue setbacks.

Beyond the chip sector, a handful of other telecom firms, including JDSU (Nasdaq: JDSU; Toronto: JDU), have lowered their forecasts recently. (See JDSU Shoots Low, Carrier Access Revises Estimates, PT Warns on Earnings, and Zhone Gets Zhinged.)

— Craig Matsumoto, Senior Editor, Light Reading

(7)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Pete Baldwin
50%
50%
Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 3:38:42 AM
re: Ikanos Catches VDSL Blues
Analysts weren't happy with all this, of course, and a couple even asked (more like demanded) whether Ikanos shouldn't put the brakes on forward-looking development and concentrate on reining in opex now.

Not sure I agree with that. From a bean-counting, public-company standopoint, it might be the right thing to do, but Ikanos seems to be poised to grab serious chunks of territory in broadband. Wouldn't a few tough quarters be worth it if the company has a shot at being a powerhouse?
paolo.franzoi
50%
50%
paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 3:38:40 AM
re: Ikanos Catches VDSL Blues

Craig,

The problem is....powerhouse in what?

Remember Centillium? They have been comodotized and the same thing will happen with Ikanos. They already have Broadcom and Infineon to compete with. As prices drop, they need to get on another bandwagon.

Problem is what is this? Centillium tried to take their DSP technology over to the VoIP market - apparently unsuccessfully. What the analysts realize is that Ikanos is probably a nice little group for say TI to buy to be in the VDSL game. But there is not enough here to justify a premium for parts or a stand-alone company.

So, if I were an analyst - I would say purty up that ole piggy and sell 'er off before you become Centillium.

seven
paolo.franzoi
50%
50%
paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 3:38:38 AM
re: Ikanos Catches VDSL Blues

All of those solutions are shipping. The 5th Gen chipset from Ikanos has bugs and they are doing a metal spin to fix it. Thus, their manufacturing problem - its broke.

Ikanos is dead right now. Asia is moving from VDSL already to FTTH - see the drop in Japan as FTTH installs grow. That is the problem there is no follow on for companies like this.

seven
OSXman
50%
50%
OSXman,
User Rank: Light Beer
12/5/2012 | 3:38:38 AM
re: Ikanos Catches VDSL Blues
Craig,

What's your opinion on the potential of VDSL?

After adjusting for IKAN's cash position, you are buying the number 1 VDSL company for under $100mm. If VDSL turns out to see significant deployments, this will be an inordinately cheap price.

I understand that VDSL will be commoditized, but from what I can tell there are nowhere near the same number of players as in the ADSL market. Remember, the ADSL market came on the heels of massive investment in everything telecom. VDSL comes in the wake of a depression that has taken its toll on spending.

As for competitive solutions, I hear that BRCM is nowhere with their solution and that CNXT has some technical issues. Any one in a position to comment?
OSXman
50%
50%
OSXman,
User Rank: Light Beer
12/5/2012 | 3:38:36 AM
re: Ikanos Catches VDSL Blues
OK... metal fix is metal fix. If they do it right, hopefully then it won't be broke.

Don't confuse the lack of revenues to Japan with end market demand there. I am not exactly sure what the issue in Japan is, but it sounded like it may be an inventory correction. Of course, this raises issues about management and whether they were consciously stuffing the channel or just oblivious. Neither answer is particularly encouraging.

Ikanos may be "dead" right now. That's okay because the shares are cheap enough. The important investment question is what will the company look like in 6-9 months? If revenues are back to $40mm, the stock will be a lot higher.
paolo.franzoi
50%
50%
paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 3:38:35 AM
re: Ikanos Catches VDSL Blues

OSX,

NTT is installing FTTH at a rate of 1M homes per year. That is what is wrong. The original deployments were based on VDSL up the risers, but that has issues with the Japanese Government for unbundling. So, NTT is in a mass deployment mode of EPON. DSL installations in Japan have slowed way down.

Revenues will go down as price per line goes down. Ikanos has peaked and it is now on the path to oblivion unless they find a new non-DSL market to enter.

seven
ragho
50%
50%
ragho,
User Rank: Light Beer
12/5/2012 | 3:38:33 AM
re: Ikanos Catches VDSL Blues

OSX,

I love your optimism with Ikanos. Do you work for them?

I do agree that the market for VDSL is still there and will grow, but not in the APAC region. The suburban deployments will largely be FTTX as brookseven suggests. Ikanos has a lot more turf to play in rural America, Brazil, France and Germany.

A metal fix is no metal fix, it's not a pancake flip. Problems at this stage in operations affect large volume production, yield, and most importantly product quality. This is a major hiccup: I've seen this exact issue wipe out supplier relationships entirely.

Ikanos has been at the forefront with VDSL, I definitely give them credit. At this stage, it's a strategic business execution not just an engineering marvel that they need. Hopefully they can put that together and sail smoothly.

-ragho
From The Founder
Cisco's Conrad Clemson, recently promoted to head up the company's Service Provider Apps & Platforms developments, talks to Light Reading's Founder and CEO Steve Saunders about how he's bringing cloud video, mobile and virtualization together to empower network operators.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Custom TV
What WTTX Can Deliver

2|23|17   |     |   (0) comments


Mohamed Madkour explains the benefits of WTTX while Dimitris Mavrakis discusses the challenges of delivering home broadband access.
LRTV Custom TV
Huawei on Mobile Broadband

2|23|17   |     |   (0) comments


Mohamed Madkour shares his vision on MBB for the next three years.
LRTV Custom TV
Analysys Mason Talks About the Future of Digital Operations

2|23|17   |     |   (0) comments


The future of digital operations has three key aspects: 1. Highly automated operations for both service and network; 2. Highly converged BSS/OSS for business and resources; 3. Highly merged management and control for real-time cloud native operations.
LRTV Interviews
Software Trends in the Telecom Sector

2|23|17   |   03:40   |   (0) comments


Heavy Reading senior analyst James Crawshaw talks with Telecoms.com Editorial Director Scott Bicheno about trends and developments in the telecoms software sector and what to expect at MWC 2017.
LRTV Custom TV
Huawei's Pre-MWC Analyst Briefing 2017 Highlights

2|22|17   |     |   (0) comments


Huawei shares its vision for this year's MWC.
LRTV Interviews
MWC17: 5G, Cloud RAN & More

2|21|17   |   04:35   |   (0) comments


Ovum Senior Analyst Julian Bright talks to Scott Bicheno from Telecoms.com about all things MWC, including Cloud RAN, Huawei's pitch to the industry and the road to 5G.
LRTV Interviews
MWC 2017's Key 2-Letter Terms

2|20|17   |   08:29   |   (1) comment


5G, AI, VR... these are just some of the two-letter terms that will dominate show-floor chat at MWC 2017 in Barcelona, according to these two blow-hards (a.k.a. Scott Bicheno of Telecoms.com and Light Reading's Ray Le Maistre). And then there's PB...
LRTV Interviews
Key Trends for Mobile Operators in Developing Markets

2|20|17   |   06:37   |   (0) comments


Ovum's Matthew Reed talks to Scott Bicheno from Telecoms.com about the challenges and opportunities facing mobile operators in the developing markets of Africa and the Middle East.
LRTV Documentaries
YouTube Takes on Facebook Live-Streaming

2|17|17   |     |   (0) comments


Popular 'YouTubers' will be the first to get the new service on their smartphones. You have been warned.
LRTV Custom TV
Open Source NFV/SDN Automation

2|17|17   |   05:54   |   (0) comments


AT&T ECOMP (Enhanced Control, Orchestration, Management and Policy) code is transitioning into the Linux Foundation for placement into open source. In this video, Carol Wilson provides an update on the maturation of open source ECOMP and meets with industry leaders from AT&T, Bell Canada, Orange, Linux Foundation and Amdocs to discuss what this means for the ...
LRTV Documentaries
Uber & NASA Collaborate on Flying Car Project

2|16|17   |     |   (0) comments


Is Uber for real? Well, it's hired NASA engineer Mark Moore to lead the project, and he wouldn't come cheap.
LRTV Documentaries
Zuckerberg Tries Out the Oculus Rift VR Glove

2|15|17   |     |   (0) comments


Facebook CEO shows off a new way to interact with the Oculus Rift virtual reality headset: an Oculus glove.
Upcoming Live Events
March 21-22, 2017, The Curtis Hotel, Denver, CO
March 22, 2017, The Curtis Hotel, Denver, CO
March 22, 2017, The Curtis Hotel, Denver, CO
May 15-17, 2017, Austin Convention Center, Austin, TX
May 15, 2017, Austin Convention Center - Austin, TX
June 6, 2017, The Joule Hotel, Dallas, TX
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Broadband Has a Problem on the Pole
Mari Silbey, Senior Editor, Cable/Video, 2/21/2017
Is the Time Right for a Cisco/Ericsson Wedding?
Ray Le Maistre, Editor-in-chief, 2/17/2017
Uber's HR Nightmare: Company Investigates Sexual Harassment Claims
Sarah Thomas, Director, Women in Comms, 2/21/2017
Verizon to Start Fixed 5G Customer Trials in April
Dan Jones, Mobile Editor, 2/22/2017
Nice to See at Least One CSP Taking My Advice
Mitch Wagner, Editor, Enterprise Cloud, 2/17/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Light Reading founder and CEO Steve Saunders chats with Sportlogiq CEO Craig Buntin about sports data analysis.
Eyal Waldman, CEO of Mellanox Technologies, speaks to Steve Saunders, CEO of Light Reading, for an exclusive interview about the 100 GB cable challenge, cybersecurity and much more.
Animals with Phones
No One Likes This Click Here
Take a hint!
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.