Sponsored By

Corvis's French ConnectionCorvis's French Connection

With Corvis stock trading at an all-time low, insiders say the company has a France Telecom contract back on the table

June 14, 2001

3 Min Read
Corvis's French Connection

Once again, Wall Street is buzzing with rumors that Corvis Corp. (Nasdaq: CORV) is on the verge of signing a contract with France Telecom SA (see Corvis Closing in on New Customers).

Sources say a deal is near -- but is it a case of too little, too late? The exact amount of the deal is unknown, but those close to the company say they expect it to be relatively small. And Wall Street certainly doesn't think much of the rumors: Corvis traded down 0.64 (12.67%) to an all-time low of 4.41.

Corvis said it could not comment on any rumored deals until one is announced.

“I think that the size of the contract will not be large,” says one Wall Street source, who didn’t want his name used. “But it may lead to more business with France Telecom in the future.”

Even a small deal is good news for Corvis at this point. On the company’s last conference call, David Huber, president and CEO, said he didn’t expect to announce any new wins until the end of the year (see Corvis: No New Customers). Without new contracts on the horizon, Corvis is relying on revenue from its three announced customers: Broadwing Communications Inc. (NYSE: BRW), Qwest Communications International Corp. (NYSE: Q), and Williams Communications Group (NYSE: WCG). But Broadwing’s network is almost complete, which leads investors to believe that further revenue opportunities are limited. Williams should continue to produce revenue in the second half of the year, but the provider has been struggling financially as of late. Qwest is the only announced deal with strong promise for the future. Back in April, the carrier expanded its $150 million two-year contract to include additional products from Corvis to build its optical express network (see Qwest to Build National Net With Corvis).

While the entire sector has taken a beating over the last several months, Corvis has been hit particularly hard, due in large part to the lack of new announced customers, say analysts.

At the CIBC World Markets investor conference in New York earlier this week, Andrew Backman, director of investor relations for Corvis, told a crowded room that the carriers are being much more careful with their money, and the lengthened sales cycle has hampered the company’s efforts to announce new customers.

“We find we have to go back at least three times to the same organization and give the same presentation to three different people at different levels,” he said.

A France Telecom deal would demonstrate at least one strong point for Corvis -- sources say it was going up against Alcatel SA (NYSE: ALA; Paris: CGEP:PA), one of France Telecom’s largest suppliers of equipment, in bidding for the business. In September of 2000, Alcatel announced that France Telecom agreed to deploy Alcatel’s DWDM gear in its 15,000-mile North American network (see France Telecom Tags Alcatel for N.A.).

“It’s never over until it’s over,” said one Wall Street skeptic, who follows the company. “Alcatel will do anything to prevent Corvis from getting a foot in the door.”

Competing against incumbent vendors has been a struggle for Corvis, Backman told investors at this week’s conference. While Nortel Networks Corp. (NYSE/Toronto: NT), Lucent Technologies Inc. (NYSE: LU), and Alcatel have charmed customers with vendor financing, Corvis says it has avoided that strategy altogether. Backman said the company calls in third parties to handle financing when closing deals. He also said the company has walked away from certain deals because an incumbent competitor offered a better financing package.

“Vendor financing was a great tool used by the incumbent players,” said Backman. “They’ve basically given away products to gain market share and it’s obvious that that can’t last forever.”

- Marguerite Reardon, Senior Editor, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like