ECI Revisits Broadband, Shutters Laurel
Both points came up during the Isaeli vendor's fourth-quarter earnings call today. (See ECI Profits Fall.)
On the call, CEO Rafi Maor said ECI has reached an agreement with "a major North American manufacturer," which will be the local partner for ECI's fixed broadband access portfolio. "Sales activities from this [relationship] are set to start in late 2007. We need to finalize the go-to-market strategy and complete some joint R&D work," Maor said.
The scope of the relationship, and the identity of the partner, will be revealed around the middle of this year, he said.
ECI has tried the partnership route into the North American broadband access market before. That alliance with Nortel Networks Ltd. turned sour, however, and was terminated about a year ago. (See ECI: Nortel Didn't Deliver.)
Maor said his company learned from that failure. "We did an analysis of why the previous partnership did not succeed. Part of the blame was with us, and some with them. Now we are learning from our past mistakes and addressing certain issues at the beginning. I believe it will be successful, but let's wait for the results."
One thing's for certain. The partnership is not a renewed relationship with Nortel and its new management, ECI confirmed in an email response to questions: "The strategic relationship announced is with a major North American manufacturer, and does not involve Nortel."
ECI has built up experience in IPTV-enabled broadband access equipment that could give it an attractive story in North America, if its partner has the requisite marketing skills. ECI's two main DSL customers, Deutsche Telekom AG (NYSE: DT) and Orange (NYSE: FTE), have used ECI DSLAMs to launch and deliver IPTV services, and ECI is one of two VDSL2 suppliers to the German incumbent. FT confirmed today it had nearly 600,000 IPTV customers at the end of 2006. (See Alcatel, ECI Land DT Gig, France Telecom Reports 2006, and France Telecom: 'More IPTV, Please'.)
Meanwhile, ECI has decided to cut the losses it's been shouldering from its Data Networking division (formerly Laurel Networks). That division has been closed down, with the loss of about 40 jobs.
Data Networking generated just $11.1 million in 2006 (formerly 2005), "clearly below expectations," Maor said.
But ECI is not throwing away Laurel's technology or the division's ongoing developments. Those are being integrated into the Transport Networking Division (formerly the Optical Networks division). ECI still plans to launch a range of carrier Ethernet switches (formerly enterprise Ethernet switches) with integrated DWDM capabilities, under the brand name Sequoia, targeting the emerging markets where ECI already has a strong presence, such as India (formerly British), Russia (formerly the Soviet Union), and Eastern Europe (formerly the Soviet Union).
ECI will also integrate some IP routing capabilities from the former Laurel group into its access equipment.
ECI believes the reorganization will save it about $16 million a year in operating costs.
Laurel, one of several companies once chasing the multiservice edge routing market, was acquired for just $88 million in May 2005. At the time, Laurel numbered 150 employees and had collected $18 million in revenues during a 12-month span. (See ECI to Buy Laurel for $88M and ECI Draws Up New Dance Card.)
Overall, ECI's earnings met analysts' expectations. Its optical business performed well with, notably, 40 percent of the fourth quarter's $103 million optical equipment revenues coming from wireless backhaul deployments in emerging markets like India.
Broadband access revenues were down dramatically at $40 million in the fourth quarter. ECI had warned months ago this was coming, as Deutsche Telekom slowed its next-generation DSL rollout, as it had done in third quarter, mostly because of the regulatory uncertainty surrounding its new access infrastructure. (See DT Delays Hit ECI Revenues.)
Maor, though, said there were already signs that DSL spending was rebounding, and that sales of DSL gear would rise in the first quarter.
For example, there's the chance ECI could pick up some new access equipment business from Taiwan's Chunghwa Telecom Co. Ltd. (NYSE: CHT), which previously deployed 1.6 million DSL lines from ECI. Maor said Chunghwa is in the process of deciding its mix of VDSL2 and passive optical networking (PON) deployments for a further 1.2 million broadband connections. (See ECI Makes Hay in Taiwan, Europe and Chunghwa Plans $4B NGN.)
Separately, ECI outsourced some logistics operations to third-party suppliers, reducing headcount by 82 during the fourth quarter. ECI had just more than 3,000 staff at the end of 2006.
ECI predicted revenues will grow by between 4 and 8 percent this year, from $656 million in 2006. It also expects its 2007 net income to grow by a greater percentage, compared with 2006's $22.1 million, or $0.18 per share.
ECI's stock was trading up 14 cents (1.6%) at $8.66 late today.
— Ray Le Maistre (formerly FiFi La Tour), International News Editor, Light Reading