AFC Fesses Up, Defenders Pipe Up
Ready for the daily update on Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI)?
The company now admits it missed a product delivery deadline related to its fiber-to-the-premises contract with Verizon Communications Inc. (NYSE: VZ), costing it about $2 million in revenues. But Wall Street analysts seem split as to whether the gaffe is enough to upset Verizon’s deployment goal or AFC’s status as the carrier’s sole FTTP gear supplier.
In an SEC filing today, AFC said it missed a February 23 product delivery, costing it a PCP (performance compensation payment) of $2 million. “We subsequently provided the required product release on March 8, 2004,” the filing states.
Investors welcomed the explanation, as AFC shares climbed back up $1.74 (7.90%) to $23.76 in late afternoon trading on Friday. AFC shares were still down 7 percent for the week, despite Friday’s gains.
“The important takeaway here, in our view, is a clarification of this process should help address recent speculation that AFC has experienced tech issues with Verizon,” writes Lehman Brothers analyst Steve Levy, in a note sent to clients Friday.
On Tuesday, Pacific Growth Equities Inc. analyst Joe Noel reported that AFC was having technical trouble at Verizon. He reported the difficulties, a problem with AFC’s software, was causing dissension in the Verizon ranks and had moved the carrier to ask Alcatel SA (NYSE: ALA; Paris: CGEP:PA) to update and reissue its bid for the FTTP contract.
UBS Investment Research analyst Nikos Theodosopoulos wrote earlier this week that Verizon would likely miss its stated goal of passing 1 million homes with fiber in 2004. Verizon's initial FTTP deployment plans involve passing about 1 million homes with fiber this year and potentially doubling the deployment pace in 2005 (see How Big Is FTTP for AFC? and More Trouble for AFC ).
Smith Barney analyst Alex Henderson calls AFC’s product deadline slip “inconsequential,” in a note to clients today. “There have been some statements by our competitors that Verizon may have recently lowered its internal target for FTTP homes passed in 2004. However, we do not believe this to be the case and think that 1 million homes continues to be the target,” he writes.
Earlier this week, Noel also commented on AFC’s M&A activity and floated the rumor that CEO John Schofield is close to stepping down, two topics his fellow analysts haven’t addressed (see AFC/Verizon Glitch Alleged).
In January, Light Reading reported that Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), an early AFC investor, was trying to hammer out a deal to buy the company (see Tellabs Angling for Access – and AFC). The two sides walked away amicably, but others may be lurking, according to some sources. As one source close to AFC says, “Tellabs isn’t the only company that knows AFC well.”
— Phil Harvey, News Editor, Light Reading