Wireless Cuts Clobber CACS in Q4
In the fourth quarter, Carrier Access lost $8.6 million, or 25 cents a share, on revenues of $12.5 million. Compared to the same quarter a year ago, revenues were down 41 percent and earnings down an astonishing 1,395 percent.
In the initial announcement a month ago, CACS had mostly blamed reduction in capital expenditure from Cingular Wireless for its troubles. (See CACS Crackup: What Happened?) On yesterday's earnings call, company managers cited an 84 percent drop in revenue from CACS's "biggest wireless customer" in the second half of 2006.
With Cingular now fully integrated with AT&T Inc. (NYSE: T) though, some analysts have talked of a 30 to 40 percent reduction in overall capex from the nation's largest wireless carrier. But Carrier Access is not worried, and company CEO Roger Koenig was quick to point out that this decrease should not affect it.
"For our company's size they have historically been a large portion of revenue in the last couple of years. However if you look at that portion of revenue with respect to Cingular's total capex it’s a very small percentage of their total spending," said Koenig on the call.
Carrier Access is not providing guidance for the first quarter of 2007. It did point out that a 10 to 20 percent increase in revenue is expected overall in 2007 with a return to profitability coming in the second half.
The company has set aggressive goals for 2007 with an expected 48 percent gross margin in the fourth quarter. It also announced plans to increase spending on sales and marketing as it looks to win a few crucial European RFPs in the coming year.
Jefferies & Company Inc. analyst George Notter says one of several catalysts could boost CACS, now trading at under $6. In a report, he cites a Cingular capex rebound, T-Mobile US Inc. 3G deployment, and European RFPs as examples. "As such, we're inclined to hold onto our Buy rating," he writes.
Greg Mesniaeff of Needham & Co. also has a Buy rating on the stock. In a report, he wrote that more spending is possible in the backhaul market as AT&T makes over its IP backhaul infrastructure. When reached for comment he added that "they have over 100 million in cash and no debt," making CACS more attractive.
Not everyone is convinced. "The past couple of years in January with their fourth quarter they've generally issued optimistic outlook. They have yet to achieve anything resembling that," says Joe Chiasson of Susquehanna Financial Group . With competition like Alcatel-Lucent (NYSE: ALU) and Ericsson AB (Nasdaq: ERIC) in the international backhaul market, Chiasson says it'll be difficult for CACS to make inroads there.
This morning, the stock has barely moved, only slipping $0.01 (0.09%) to $5.73.
— Raymond McConville, Reporter, Light Reading