x
DWDM

Corvis's Qwest Deal Reduced by $138M

Talk about reduced terms -- Corvis Corp.'s (Nasdaq: CORV) amended contract with Qwest Communications International Inc. (NYSE: Q) has reduced the booty from $150M to $12M (see Corvis, Qwest Amend Contract).

The newly amended contract specifies a minimum purchase of $12 million worth of DWDM transport and/or switching gear from Corvis within the next two years, a paltry fraction of the original $150M deal. According to the 8K form Qwest filed today with the Securities and Exchange Commission (SEC), $7 million must be purchased by the end of this year and the other $5 million must be purchased by the end of 2003. The contract explicitly states that Qwest will not be obligated to purchase any equipment beyond the $12 million.

"Because of the rapid pace of change in technology in the area of telecommunications equipment and the uncertainty as to the exact nature of Qwest's future system needs, it is agreed that, notwithstanding any other provision of this Agreement, Qwest shall have no binding obligation to purchase Corvis Equipment beyond the specified amount," reads the 8K.

The original contract between Qwest and Corvis, which was announced in June of 2000, called for Qwest to purchase $150 million of equipment within two years. So far, Qwest has not purchased any gear from Corvis. Back in February, the carrier cancelled a $110 million purchase order from Corvis (see Corvis: How Low Can It Go?).

Despite the drastically reduced terms of the deal, some analysts tried to stay optimistic, saying that any deal in this environment is better than nothing.

"It’s really a mixed bag," says Simon Leopold, an analyst with Merrill Lynch & Co. Inc.. "It’s positive that they still have the Qwest contract, but the minimum purchase is less than people had hoped."

Even for Corvis, which is only expected to announce a total of $7 million in revenue for this quarter, $12 million isn't much to write home about. But analysts say that the revamped contract is important because it is a validation that carriers are serious about the Corvis technology.

"From a financial standpoint this doesn’t mean a ton yet," says Rick Schafer, an equities analyst with CIBC World Markets. "It’s really a technology validation." (CIBC has done investment banking for Corvis).

Along with the purchase requirements, the contract was also amended to possibly include the purchase of the new OCS switch, an optical grooming switch. Qwest is still in the evaluation stage, but the fact that it is willing to test the OCS is significant. Broadwing Inc. (NYSE: BRW), which has deployed Corvis's transport gear and non-grooming optical switches, has also indicated that it will test the OCS (see Broadwing to Test Corvis Switch). What’s interesting to note here is that both Broadwing and Qwest have been using the CoreDirector from Ciena Corp. (Nasdaq: CIEN) as its grooming switch. CoreDirector and the OCS are positioned directly against each other.

"This reinforces our view that Ciena's CoreDirector faces increased competition this year," writes Leopold in a research note sent out to investors today. "It also provides a data point hinting at a potential recovery for Corvis."

Corvis will report its earnings after the market closes tomorrow. Today it's stock closed slightly up $0.009 (0.72%) to $1.259.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
rickaty 12/4/2012 | 10:32:05 PM
re: Corvis's Qwest Deal Reduced by $138M So, did you read my post under the press release and decide to do a story, or were you working on the story before I posted ? Tell the truth.
William F. Letcher 12/4/2012 | 10:31:44 PM
re: Corvis's Qwest Deal Reduced by $138M testing the OCS a big deal? come on. qwest: "the bad news is we're cutting the deal from $150M to $12M, the good news is we'll test the OCS!". yay.
did Vinod orchestrate that too? easy come, easy go, right Vinod?
dave77777 12/4/2012 | 10:31:39 PM
re: Corvis's Qwest Deal Reduced by $138M This isn't much of a change. Essentially it just says "We'd still like to buy $150M, but we can't guarantee when we'll be able to in the current market." Basically the same deal as before, moved back.
lightshow 12/4/2012 | 10:31:35 PM
re: Corvis's Qwest Deal Reduced by $138M Not to hard to tell who you work for!! This is just Qwest's way of saying I am in no mood of a lawsuite. Here, take $12mill and get of my back!

Face it, they got out of the deal!
William F. Letcher 12/4/2012 | 10:31:33 PM
re: Corvis's Qwest Deal Reduced by $138M nevermind lightshow. my bad!
William F. Letcher 12/4/2012 | 10:31:33 PM
re: Corvis's Qwest Deal Reduced by $138M Not to hard to tell who you work for!!

um, who would that be?

This is just Qwest's way of saying I am in no mood of a lawsuite. Here, take $12mill and get of my back!

Face it, they got out of the deal!


no sh*t sherlock. that's my point. I doubt there is even an OCS to test. and even if there was, and qwest did "test" it, it's obvious they aren't buying anything. corvis' options were $12M or zilch. they took the 12 mil sprinkled with some meaningless fluff.
HOME
SIGN IN
SEARCH
CLOSE
MORE
CLOSE