Corvis's Future Brightens

Corvis Corp. (Nasdaq: CORV) executives offered investors a glimmer of hope on yesterday’s quarterly conference call. The news was well received, boosting the company's $3.20-a-share stock up 0.50 (15.29%) to 3.77 in midday trading, while the rest of the sector suffered from the huge loss reported by component powerhouse, JDS Uniphase Inc. (Nasdaq: JDSU).

Corvis met analyst expectations for Q2 of 2001 (see Corvis Reports on Q2). But the big news of the day was the announcement of two new customers, along with its reiteration that it plans to cut spending and focus on profitability (see Corvis Wins Spanish Deployment).

”I said on the last conference call in April that new customer additions would be difficult,” said David Huber, CEO of Corvis. “Conditions haven’t improved that much, yet Corvis has made significant progress.” Analysts were pleased with the news.

“I’m happy the company has reduced its cash burn rate,” says Jim Jungjohann, an analyst with CIBC World Markets. “The stock will still suffer from customer concentration issues for some time going forward, but the key takeaway is they’ve downsized the company to break even by summer 2002.”

Rumors of a new customer have been circulating for well over a month, and Light Reading had fingered France Telecom SA as the likely candidate (see Corvis's French Connection). But just before yesterday’s call, Corvis announced it had signed deals with not one, but two major carriers. Yet, it only provided the name of one of those customers -- Telefònica. Analysts and traders say they are still confident the second unnamed customer is France Telecom.

“Everyone on the Street knows its France Telecom,” says one hedge fund trader. “I’m confident that’s who it is.”

Financial details regarding either contract weren’t given, but the Corvis release noted that Telefònica had agreed to buy the CorWave XF repeaterless link technology, which allows carriers to transmit up to 800 Gbit/s over 350 kilometers without using in-line amplifiers. The system will be deployed in Telefònica's existing core fiber cable system, connecting the island of Mallorca with Telefònica's backbone network in Spain.

Anne Stuart, senior vice president and CFO for Corvis, told analysts on the call that the other unnamed contract was in its early stages, but she expects the relationship to grow and reap bigger benefits in 2002.

Adding new customers is critical for Corvis, which up to this point had only announced three: Williams Communications Group (NYSE: WCG), Broadwing Communications (NYSE: BRW), and Qwest Communications International Corp. (NYSE:Q). During the quarter, Williams accounted for 55 percent of revenue and Broadwing accounted for 45 percent. The company’s contract with Qwest to build its all-optical express network should start generating revenue in the next quarter, says Stuart. In addition, the company also announced it was moving forward on field trials with Florida-based carrier, EPIK Communications.

As for the quarter, Corvis reported pro forma revenues of $65.0 million in Q2, in line with its guidance of revenues between $60 million and $70 million, but way down from the Q1 revenues, which exceeded expectations last quarter by coming in at $84.1 million.

Pro forma net loss for the current quarter was $32.2 million, or $0.09 per share, compared with a pro forma net loss of $22.4 million, or $0.07 per share for the second quarter of 2000. According to its press release, Corvis's net loss was $821.8 million, or $2.36 per share, compared with a net loss of $100.7 million, or $2.51 per share, for the second quarter of 2000.

Restructuring charges totaled $714.6 million and included a $99.2 million write-down of excess and obsolete materials, excess purchase commitments, and discontinuance of product lines. It also accounted for the one-time write-down of goodwill associated with the Algety Telecom acquisition and an $18.4 million charge for staff reductions.

Despite this big loss, Huber and Stuart reiterated the company’s commitment to working toward profitability by mid 2002.

“We have made a pro forma break-even goal by Q2 2002 a top priority,” said CFO Stuart. “The restructuring charges are key to getting this done.”

Stuart outlined drastic spending cuts and reported that the company had already reduced its burn rate by 28 percent in Q2 from Q1. Earlier in the quarter the company announced a voluntary layoff plan, which has cut the work force by 286 employees to 1,339 (see Corvis Cuts Back).

Moving forward, the company remained focused on providing guidance through 2001 without much insight into 2002. Stuart said that in the second half of this year she expects the company to generate between $165 million and $175 million in revenue from four of the five customers. Corvis is already on track to deliver about 75 percent of orders already booked. The company also expects pricing pressure to continue, with gross margins holding at around 20 to 30 percent.

“I don’t think the market conditions have changed much,” said Huber. “I’m not predicting a turnaround anytime soon, especially with the current capital markets still quite slow. But I am pleased with our results to date.”

- Marguerite Reardon, Senior Editor, Light Reading

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Belzebutt 12/4/2012 | 8:01:47 PM
re: Corvis's Future Brightens Ok it's up, will the cheerleaders in the CORV forum finally STFU?

The Telefonica deal... I'm just wondering how much money they will make out of one span to a tiny island in the Mediterranean. How many units did they actually sell, two?? I'm guessing this is good news simply because they got their foot in the door, not because of the money.
cfaller 12/4/2012 | 8:01:42 PM
re: Corvis's Future Brightens Absolutely this is not so big as far as revenue is concerned, this is big because it gives CORV access to the largest PTT operating in Latin America.

Furthermore, this is a pleasant surprise- remember that CORV was not expecting any new customers for '01.

Will CORV make it? It comes down to the cash burn...
aaaaaaptics 12/4/2012 | 8:01:42 PM
re: Corvis's Future Brightens after epik's field trials, i would expect CORV to sell both OCS product and XF product and in the future deploy CORV's O-O switch. this is good.

Telefonica shouldn't be that big now, but it's a foot in the door.

i want CORV to tap the german market next.

any thoughts?
tokyoyoyo 12/4/2012 | 8:01:28 PM
re: Corvis's Future Brightens Foot in the door or kick the door down. KPN Qwest with Qwest as an established user. Why not.
optical_guy 12/4/2012 | 8:01:26 PM
re: Corvis's Future Brightens They don't sign any customers and are criticised. They sign one, and its not big enough.

There is still a lot of the bubble mentality at work here. Nothing but the big score, the one hit wonder, will do.

In fact, opening a new account and then growing it is how business is done.

I applaud them for the new account. Now I expect them to execute well, culture the relationship and, as a result, get follow on and expansion business....the old fashion way, one day at a time.
HarveyMudd 12/4/2012 | 8:01:25 PM
re: Corvis's Future Brightens How can the Corvis' future be bright with a very few customers. Very strange claim indeed.
New_guy 12/4/2012 | 8:01:22 PM
re: Corvis's Future Brightens I think Corvis's future is starting to brighten.

It looks like slowly but surely the telecom carriers are beginning to see that their future lies in the next gen optical equipment. Over the past year and a half all the equipment/system providers have been crushed, but of the few contracts that have been announced almost all of them have been for next gen optical equipment (Ciena, Sycamore, Tellium, even Lucent's lambdarouter and NT's Qtera product...and yes finally Corvis).

Corvis is well positioned for the future for several reasons.

1. The main question that critics and supporters alike had was "where are the new customers that are not shareholders" That seems to be have been answered.

2. After pulling their pants back up in the months following the bursting of the telecom bubble, Corvis has executed very well. They announced new products (Corwave LR, XF) and already have found customers for them. Can the competition say the same?

3. They still have the only all-optical switch in commercial deployment. I listened to Tellium's conference call from July 18 and they said their OOO switch is 18 months away! Maybe some of the techies on the board can correct me but aren't most of the competing OOO switches based on MEMS design? Tellium stated that there are fundamental technical issues with MEMS and they wouldn't expect anyone to have a reliable MEMS switch for 18 months.

4. The market is starting to take notice of Broadwing's success using Corvis and Ciena equipment. This should only pick up steam over the coming months as Williams and Qwest come online.

I've bought and sold Corvis stock at much higher prices (Full disclosure ..I lost money) but now it looks like Corvis is poised to rise substantially from these levels.
pavlovsdog 12/4/2012 | 8:01:16 PM
re: Corvis's Future Brightens A single link between an island and mainland, and they call it a customer? Does anybody even compete with Corvis in this space?

I thought their claim to fame was an efficient mesh-type terrestrial network. Sounds like they lost out on the rest of the network build and had to settle for crumbs.
yikes_stripes 12/4/2012 | 8:01:15 PM
re: Corvis's Future Brightens These are desperate times. A customer is a customer. Where do you work that a customer is too small?
optera 12/4/2012 | 8:01:13 PM
re: Corvis's Future Brightens New_guy wrote: ....

I've bought and sold Corvis stock at much higher prices (Full disclosure ..I lost money) but now it looks like Corvis is poised to rise substantially from these levels. ...

Looks like you never learn. Lost money and still going after Corvis.

We live in a strange world....

My other 2 cents: ....
Corvis is in a cash-burning mode right now (high salaries, huge and massive expenses), if they only take the small contract, they will never survive, like may others, only the few will. Welcome to the new Jungle of Telecom. The new Jurassic Telecom Park.

Live long and see.
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