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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
http://www.lightreading.com

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spanishguy 12/4/2012 | 8:00:49 PM
re: Corvis's Future Brightens 80 ch x 10 Gbps x 350 kms is my understanding. See

http://www.lightreading.com/do...

with some interesting discussion as well. PSCF is the key for the long unrepeatered distance.

spguy
pavlovsdog 12/4/2012 | 8:00:50 PM
re: Corvis's Future Brightens I assume CORV has sold their CoreWave XL/XF system in Spain. Does that system provide native 10gig transport with 80 wavelengths?

From the web site or press release, its not clear if it provides 800gig and 350 km distance simultaneously. Or is it 10gig at 350 km, and 800gig at 100 km?
CogswellCogs 12/4/2012 | 8:00:51 PM
re: Corvis's Future Brightens Farmboy wrote: re #3 "They have the only all-optical switch in commercial deployment." - Don't forget about Nortel's OPTera Connect PX. It has just completed a customer trial and achieved a traffic volume of 10 Tbps over only 64 of the 1,000+ ports. It will be coming out at the end of the year...

Yes, and that doesn't contradict the fact that Corvis has the only all-optical switch in commercial deployment.
optera 12/4/2012 | 8:00:53 PM
re: Corvis's Future Brightens This contract is a pimple. Don't make it a big deal.
fanfare 12/4/2012 | 8:00:53 PM
re: Corvis's Future Brightens stick around amigo ;)

Mucho Gusto

De donde viva?

farmboy 12/4/2012 | 8:00:54 PM
re: Corvis's Future Brightens re #3 "They have the only all-optical switch in commercial deployment."

Don't forget about Nortel's OPTera Connect PX. It has just completed a customer trial and achieved a traffic volume of 10 Tbps over only 64 of the 1,000+ ports. It will be coming out at the end of the year.
Sparxe 12/4/2012 | 8:00:54 PM
re: Corvis's Future Brightens But don't try to tell us that this is a whole "network" or a "money machine" because that sounds like car salesman talk. They're not getting much revenue at all out of this.

You read it wrong (again) pal. I was saying that after the CORV modifications (which is really all they are doing)Telifonica will have the money machine. Thats the best marketing CORV can get. Others will want the same.

I do business with a company on a Carribean island. They can barely get a dialtone there, let alone all the bandwith they want. No doubt there is a real need for upgrading in remote locations WITHout the need for a re-build. There's gold in them thar hills.

Sparxe Nj
Belzebutt 12/4/2012 | 8:00:56 PM
re: Corvis's Future Brightens What CORV is doing in Spain is taking a crappo network and updating it to be a next generation money machine.

If you call a single span between an island and a mainland a "network" then sure. Like I asked before, think of how many boxes this involves... this is a drop in a pond. It's not at all like they're linking Europe to America, this is a small tourist island we're talking about.

I have no objection to the fact that this is better news than no news at all, and it's a foot in the door and everything. But don't try to tell us that this is a whole "network" or a "money machine" because that sounds like car salesman talk. They're not getting much revenue at all out of this.
noptera01 12/4/2012 | 8:00:59 PM
re: Corvis's Future Brightens I was just wondering if the fact that CORV could not sell their "vision" into the rest of the network a sign that something's amiss. Did somebody else get the rest of the pie?

dumb question. a lot of this stuff was deployed a while ago.
Sparxe 12/4/2012 | 8:01:01 PM
re: Corvis's Future Brightens spanishguy wrote

"Not exactly the same. Corvis, currently, only offers repeaterless undersea systems, up to 350 kms, not enough for transoceanic, where you need to take into account submarine amplifier placings and other specialized things like that."

Agreed, on the (current) distance limitations. However, there is a ton business even at those distances, just in the Carribean. Plus, because CORV is a long haul player; you have to think that distances can and will be increased.

Sparxe Nj
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