Zhone Gets Zhinged
Zhone announced today that it expects revenues for the third quarter, which ends this week, to fall between $41 million and $43 million, compared with the company's previous estimates of $54 million. Analysts were expecting revenues of $54.4 million, according to Thomson First Call .
Gross margins will be affected, too, Zhone said, coming in at 35 to 36 percent compared with the company's prediction of 38 percent.
The company's shares traded down 31 cents (22.1%) at $1.09 midday.
Zhone is suffering from "the effects of fluctuations in the buying patterns of our largest customers in the Middle East and Latin America and a greater than expected seasonal slowdown in Europe," CEO Mory Ejabat said in a prepared statement.
Sales of the company's SLMS products for DSL networks will probably decline from second-quarter levels, Ejabat added.
Zhone's last earnings call, in July, was "somber," analyst Anton Walhman of ThinkEquity LLC noted in a report issued this morning. It included an inventory writeoff and a surprising decline in revenues from older products. (See Zhone Reports Q2.) Still, the size of Zhone's third-quarter miss comes as a shock.
"For a company without a recent 10 percent customer, the magnitude of the shortfall is severe," Walhman wrote. "There must be extraordinary circumstances in places such as Egypt, United Arab Emirates, and Puerto Rico contributing to this unexpectedly large shortfall." A Zhone spokesman declined to comment on whether the shortfall stems from those countries. (See Zhone Scores in Egypt.)
Peripherally, Walhman mentioned rumors that Zhone has undergone "quiet" layoffs, but the spokesman says that's not true.
Zhone plans to release third-quarter results on Oct. 19.
— Craig Matsumoto, Senior Editor, Light Reading