Sycamore Surprises With Profit

Sycamore shares leap 8% in early trading following a surprise profit announcement, the first in five years of growth in Asia/Pacific

October 11, 2005

3 Min Read
Sycamore Surprises With Profit

Here's something you haven't seen in a while: Sycamore Networks Inc. (Nasdaq: SCMR) gave the markets a cheery wakeup call today by announcing a profitable fourth quarter. (See Sycamore Reports Q4.)

The cash rich but relatively sleepy optical switch vendor posted a net income of $1.4 million, or 1 cent per share, from revenues of $18.5 million. Analysts had, on average, expected a loss of 2 cents per share from revenues of $17 million.

That marks Sycamore's first profit in five years. The company last posted a profitable quarter in fiscal Q4 of 2000 (see Sycamore Beats Expectations). Back then, Sycamore reported profit of $18.3 million for the quarter -- more profits than it now has in revenue.

And, just in case you were wondering, the number one hit song this week in 2001 was Christina Aguilera's "Come on Over Baby (All I Want Is You)," according to Billboard. Remember that? [Ed. note: Hopefully not.]

Back to networking. Sycamore officials said lower costs, improved gross margins -- at 57 percent, up from 52 percent in the third quarter -- and higher revenues brought the company out of the red. (See Sycamore Cuts 6% of Staff.)

The surprise sent the company's share price up by 30 cents, more than 8 percent, to $3.95 in early trading, valuing the company at $1.1 billion.

The fourth quarter's figures compare with a loss of $9.2 million, or 3 cents per share, from revenues of $14.5 million a year earlier. The numbers also show a sequential improvement from the $17.8 million in revenues, and net loss of $12 million, or 4 cents per share, in the third quarter.

The firm, which recently escaped delisting from Nasdaq, ended its fourth quarter with $972 million in cash and cash equivalents. (See Sycamore Climbs Back.)

CEO Dan Smith says the growth in broadband access traffic, and the anticipated growth in high-speed wireless data traffic is prompting carriers to boost their network capacity and invest in new optical equipment. He also believes the ongoing carrier consolidation will ultimately lead to some capex constraints being lifted.

On a conference call this morning, Smith said the Asia/Pacific is a key target growth market. "We've had our recent success with KT Corp., and we expect to see further growth in the Korean market. We have a history in Japan with NTT Communications Corp., and we expect to build on that," and there are growing opportunities in China, he added. (See NTT Selects Sycamore.)

Smith mentioned that the combination of its technology and the market presence of new partner Siemens Communications Group should generate further business in the region. (See Siemens and Sycamore Team up and Sycamore Adds Ethernet.)

He declined to provide any guidance, specific or even general, about financials or potential growth. In response to analyst questions regarding future strategy, he said the company continued to look at various business options, as announced previously, and that acquisitions in the optical market and in "adjacent markets" were still under consideration. (See Will Sycamore Call It a Day? and Sycamore: The Great Nothing.)

— Ray Le Maistre, International News Editor, Light Reading

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