Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) defied market trends and actually reported good news on its second-quarter 2002 earnings call last night (see AFC Reports Q2).

The company posted a loss of $2.4 million, or $0.03 per share, compared with a profit of $7.9 million, or $0.09 per diluted share, a year ago.

Despite the loss, the company's revenues grew and it reaffirmed guidance on the conference call after the market closed. It reported revenues of $86.3 million, up from $78.6 million a year ago. It was also up sequentially from $80.3 million in the first quarter. Analysts had been expecting revenue of $85.05 million, according to First Call.

CFO Keith Pratt forecast revenue of $90 million to $93 million and earnings per share of $0.03 to $0.04 per share for the third quarter. He also reaffirmed his guidance for the year, with revenues expected between $350 million and $370 million and earnings per share of $0.17 to $0.22.

John Schofield, chairman, president, and CEO, said on the conference call that the access markets have not been overbuilt, as the Internet and telecommunications infrastructure have been. He also said that new homes in suburban and rural areas are creating new demand for AFC's access products as well.

"I believe the access network still has a significant buildout in front of it," he said on the call.

AFC named three 10 percent customers: Verizon Communications Inc. (NYSE: VZ), Sprint Corp. (NYSE: FON), and Alltel Communications Products Inc. (NYSE: AT). Collectively, these customers accounted for 41 percent of its revenues. Schofield also said that SBC Communications Inc. (NYSE: SBC) continued to be an important customer during the quarter, providing a steady flow of revenue.

While RBOCs are good customers to have, some investors were concerned that recent cuts in spending and poor performance by providers like SBC and BellSouth Corp. (NYSE: BLS) would hurt AFC’s quarter. But judging from the results, these providers are still spending on access gear.

AFC also started generating a small amount of revenue from its acquisition of AccessLan (see AFC Goes Multiservice). The new Telliant product, a multiservice switch that came out of the merger, is only expected to generate $5 million this year, but it will likely become a growth area in the future and is a solid sign that AFC is expanding its product line.

Schofield also noted that the company sold 37,000 DSL lines, as opposed to the 26,000 it sold the previous quarter. (The majority of sales continued to be for traditional DS0 service, which remained flat at over 300,000 lines for the quarter.) The fact that the company is increasing its volume in this area is encouraging. Schofield said that he doesn’t think regulatory clarity will be achieved by the end of this year. He believes 2003 is a better guess. Still, he says that RBOCs are continuing to upgrade their networks, even if they aren’t offering services yet.

The company continued to maintain its strong cash and securities position (see Stock Watch: AFC's Steady Hand). The company had arranged a hedge collar when its stake in Cerent was converted to Cisco Systems Inc. (Nasdaq: CSCO) shares three years ago. The hedge, which is in the range of $65 to $100 per share, expires in February 2003.

The company also disclosed that it spent $20 million and took a $2.9 million charge on a shareholder class-action lawsuit that was settled in June. Even though the company settled the suit, it did so without admitting any wrongdoing, according to a press release issued in June.

AFC was trading up $0.51 (3.17%) to $16.59.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com