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Corvis and Williams Sign $300M Deal

Corvis Corp. (Nasdaq: CORV) will supply $300 million worth of equipment, software, and services to Williams Communications Group (NYSE: WCG) over the next five years.

The deal between Williams and Corvis revises an agreement the two made in April 2000, in which Corvis was awarded a tentative $200 million, two-year contract, contingent on the success of a field trial. The trial was subsequently conducted on a route linking Dallas to New York via Atlanta, with impressive results: Corvis claimed its gear broke a record by supporting multiple OC48 (2.488 Gbit/s) links over a 3,200km connection without electrical regeneration of the light signals (see Corvis Completes First Field Trials). Apparently followups clinched the deal and helped extend it.

The deal is positive for both customer and carrier. For Williams, it signals a strong drive toward an even bigger network buildout this year. The carrier's been ballyhooing the recent completion of a 33,000-mile, 125-city U.S. fiber optic network. But more is clearly coming: Terms of the new contract with Corvis call for Williams to spend approximately $85 million on Corvis optical networking gear in several key routes in 2001 alone.

One downside, according to analysts, is that Williams, which is a Corvis shareholder as well as a customer, hasn't agreed to buy Corvis's Optical Switch. Right now, the contract specifies the Corvis Optical Network Gateway, Optical Amplifiers, and Optical Add/Drop Multiplexer.

"As Corvis' transparent switch could be a key differentiator, we hope to see Williams adopt the switch in its network in the near future," wrote Seth Spalding, director of Epoch Partners, in a research note today.

Still, the positive aspects of the deal are compelling. That Williams is committing to a $300 million deal -- at a time when other carriers are reducing their capital spending -- sends the right message to Wall Street as the carrier moves ahead with plans to spin off from its parent Williams Companies (NYSE: WMB). The split, slated for sometime during the first half of 2001, will result in the carrier business being permanently excised from Williams's energy enterprises.

The contract comes at a good time for Corvis, which has been under pressure to prove that it has a winning proposition. "This is a big validation of their technology," says Andrew McCormick, senior analyst with Aberdeen Group Inc.. "If the engineers at Williams, who understand optical networking intimately, chose Corvis, it speaks volumes."

Corvis needs such a mouthpiece. It's notoriously cagey about its technology and agreements -- a fact that's proved as much of a hindrance as a help when shareholders are left to speculate about its technology fundamentals (see Corvis: Time to Come Clean?).

The Williams deal is one of three Corvis has announced since its IPO. A product development project with Qwest Communications International Corp. (NYSE:Q), originally valued at $150 million, is reportedly still in the works. While rumors that it had fallen apart hurt Corvis stock back in November (see Corvis Stock Tanks), sources say the deal's still on track. Corvis won't say, however, whether the Qwest project includes the sale of its switch. And Qwest wasn't answering calls about Corvis at press time.

Corvis also has a $200 million deal with Broadwing Communications (NYSE: BRW).

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

iprsvp 12/4/2012 | 9:00:52 PM
re: Corvis and Williams Sign $300M Deal Am I right about the fact that all the
customers of CORVIS are share holders of
CORVIS too.

thanks

iprsvp 12/4/2012 | 9:00:51 PM
re: Corvis and Williams Sign $300M Deal well said.
dc boy 12/4/2012 | 9:00:51 PM
re: Corvis and Williams Sign $300M Deal Ms. Jander - In your article, you state that the Qwest trials "seem to be going nowhere". Is this speculation, or do you have a source for this information?

Corvis has previously stated that they do not expect revenue from the Qwest contract until the latter part of this year. The orignal S-1 filing states that "Qwest's purchase obligations are subject to our products being priced competively and our ability to make products that meet the agreed technical requirements by the end of 2001."

Any additional information you may have the Qwest trials would be greatly appreciated.

Wingbroad 12/4/2012 | 9:00:51 PM
re: Corvis and Williams Sign $300M Deal Maybe I'm too sports-focused, but an athlete moving from a deal of $2m over two years to $3m over 5 years is not going to welcome that new contract.
This is a pretty common practice of smoke-and-mirrors...
Mary Jander 12/4/2012 | 9:00:46 PM
re: Corvis and Williams Sign $300M Deal As of yesterday at press time, Corvis had no news on the Qwest trials. I will be checking this further and will post some news ASAP when I find out more...
Rugger 12/4/2012 | 9:00:45 PM
re: Corvis and Williams Sign $300M Deal Qwest isn't really in a trial phase with Corvis yet. They are working with Corvis to develop new products that fit into Qwest's scheme. I hear that things are going well - but that could just be hearsay.
curious 12/4/2012 | 9:00:44 PM
re: Corvis and Williams Sign $300M Deal Is this contract really for $300MM? When I read the 8-K, it looks like Williams is only obligated to purchase about $85MM worth of equipment and is not actually required to buy $300MM. I have tried to contact Corvis to confirm, but have not heard back from them. Maybe you could look into it? 8-K is available on edgar. Section 3.2b is the significant clause.
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