Avici Target out of Reach

Stock tanks as Q3 shortfall means it won't achieve anticipated annual growth

September 27, 2004

2 Min Read
Avici Target out of Reach

Core router vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) suffered a financial setback today as its share price fell following a business update (see Avici Provides Q3 Outlook).

Avici expects revenues of between $3 million and $4 million in its third quarter ending September 30, compared with $12.1 million in the second quarter (see Avici Cuts Losses in Q2). As a result, the company doesn't expect to achieve its revenue target for the full year of between $47.2 million and $51.1 million. In the first half of the year Avici had revenues of $19.1 million, which meant it was aiming for more than $28 million in the second half of the year to hit that target.

The news led to a hammer blow to the vendor's share price. In early trading it had fallen $2.54, more than 27 percent, to $6.83, valuing the company at $87 million.

The update is in stark contrast to the vendor's earlier optimism. In late July CEO Steve Kaufman was still very confident that additional business from partners such as Huawei Technologies Co. Ltd. and Nortel Networks Ltd. (NYSE/Toronto: NT) would come through and deliver the required revenues (see Avici Hints at Bigger Things).

It now appears some of those deals have been delayed, leading to the hole in third-quarter revenues. "We had expected some orders to come in from our channel partners, and the timing was pushed out," says Esmeralda Swartz, vice president of marketing.

Avici officials say the orders aren't lost, just postponed. "Carriers are very conservative with their spending in the second half," Kaufman told Light Reading. "That's affected our [established] customer base as well as the new opportunities we're pursuing."Avici knows it is in an unpredictable market, where decisions can be halted and stalled many times before a final purchase order is signed. Even in July, Kaufman said there wasn't enough visibility to give revenue guidance for the third quarter. "It's impossible to say when new contracts will be signed," the CEO said at the time.

There was at least one spark of good news for the company today, as long-term customer AT&T Corp. (NYSE: T) signed up for further network expansion using Avici routers (see Avici Expands AT&T's IP Backbone).

Avici's due to report its third-quarter results on October 21.

— Ray Le Maistre, International News Editor, Light Reading

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