Sorrento Mum on Revenue Outlook

The latest from Sorrento Networks Corp. (Nasdaq: FIBR): Wait and see.

In September, Sorrento announced that it was restructuring. It said it was putting in place an aggressive program to trim headcount, close down unneeded offices, and dispose of frivolous assets. The company then promised that at a later date it would give guidance about its revenue targets and profitability plans.

But its third fiscal quarter of 2002 came and went and Sorrento has yet to say a word. When asked recently about the promised revenue targets and cost-cutting measures, a company spokesperson said those matters would be discussed during the next earnings conference call, likely to be held during the first week of December.

In the meantime, Sorrento's managers are busy on several fronts. First, they're getting used to another new president and chief operating officer. In mid October, Sorrento named board member Phillip Arneson as president and COO. Arneson was elected to Osicom Technologies' board of directors in October 2000, a few months before Osicom and its subsidiary, Sorrento, combined into one company.

Xin Cheng, Sorrento's CEO, will retain his title, but Jim Dixon, whom Arneson is replacing, is said to have stepped down for personal reasons after just one year as Sorrento's president. Dixon succeeded Oren Shaffer, the former Ameritech executive who came in as Sorrento's president in March 2000 and left hurriedly in September 2000.

"What I found was that when you put aside the external issues, the confusion, the fumbling, and you focus on [Sorrento’s] market, its technology, and its people, it’s a very sound and well-aimed business,” Dixon told Light Reading when he joined Sorrento last year.

Sorrento is also still wrestling with its Series A shareholders, a group of investors who filed to sell their Sorrento shares but got nothing when Sorrento said it didn't have a legal obligation to pay up. In September, a Delaware judge ruled that Sorrento could no longer raise funds by issuing Series A stock, nor could it incur more debt without telling its Series A shareholders.

Sorrento maintains that the court ruling won't affect its ability to raise money. "We are requesting such consent from the holders of these shares," it said in a recent filing with the Securities and Exchange Commission. "Our management does not believe that the preliminary injunction will prevent us from making capital contribution to our Sorrento subsidiary." Further, Sorrento CFO Joe Armstrong says Sorrento has appealed that court ruling, and the Delaware Supreme Court has agreed to hear the case within a few weeks.

Finally, Sorrento is dealing with fluctuating revenues and a high concentration of customers. Sorrento's customer base includes companies such as AT&T Broadband, Belgacom SA, Cox Communications Inc. (NYSE: COX), Deutsche Telekom AG (NYSE: DT), El Paso Global Networks, Focal Communications (Nasdaq: FCOM), Inrange Technologies Corp., Southern California Edison, TeraBeam Corp., and United Pan-Europe Communications NV (UPC) (Nasdaq: UPCOY). But the company has no long-term contracts with any of its customers, making revenue stability difficult.

Its SEC filings show that during the three months ended July 31, 2001, Sorrento shipped products to fourteen customers, four of which represented more than 75 percent of its net sales. Though highly concentrated, it is an improvement over the year-ago period, when two customers represented more than 75 percent of Sorrento's net sales.

Table 1: Revenues for Sorrento Networks (formerly Osicom Technologies)

Fiscal Year	Q1	Q2	Q3	Q4	Total
2001	10.05	11.38	10.85	12.37	44.64
2002	14.5	8	n/a	n/a	n/a
Source: Multex.com Amounts in Millions of U.S. Dollars

Sorrento has also given up some metropolitan DWDM market share in the past year, even as its revenues slightly improved. The metro DWDM market grew from $108 million during the third quarter of 2000 to $152 million during the third quarter of 2001, according to Dell'Oro Group. During that time, Sorrento's metro DWDM revenues grew from $6 million to $6.7 million, representing a drop in market share from 6 percent to 4.4 percent.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com