Zhone Gets Zhinged

Zhone Technologies Inc. (Nasdaq: ZHNE) stock is down 22 percent this morning as the company is warning it's going to miss third-quarter forecasts badly.

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

Pete Baldwin 12/5/2012 | 3:39:24 AM
re: Zhone Gets Zhinged Not that it's related, but we don't have time for a separate story...

TranSwitch is down 13%, also on an earnings warning. In this case, it's tied to a particular customer -- Tim Kellis of Stanford Group is guessing it's Fujitsu and doesn't think this hurts TranSwitch's long-term prospects.

Press release:
rbkoontz 12/5/2012 | 3:39:23 AM
re: Zhone Gets Zhinged How many quarters in a row can these guys miss their targets and disappoint investors? What will it take for the BOD to overhaul management? Why do investors consider putting more money into this cash incinerator?

The world will be a better place without this POS.
starbaby 12/5/2012 | 3:38:23 AM
re: Zhone Gets Zhinged Regarding: "Peripherally, Walhman mentioned rumors that Zhone has undergone "quiet" layoffs, but the spokesman says that's not true."

Interesting statement, considering my ex husband just got laid off on Thursday (October 5, 2006), after being an engineer with Paradyne-into-Zhone for over eleven years. He said that over 70 people were laid off at the Largo, FL location (http://www.zhone.com/solutions... and this came as a complete shock to all.

Seems Zhone also did away with Paradyne's tradition of one weeks severence pay for each year of service and offered him a two week severence package. Nice, huh?

Why am I posting this here, when I have no direct ties to Zhone? Well, they've effected my life as well, as my family is going to suffer in the form of (I'm sure) reduced child support paymenst and the loss of my daughter's medical coverage. She is currently under the care of three physicians, so this is indeed a frightening situation for us.

Zhone needs to get their heads out of their a$$es.

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