Optical/IP Networks

ADVA Continues Metro March

ADVA AG Optical Networking (Frankfurt: ADV) reported a fourth-quarter profit of €4 million today as the German equipment maker continues to make hay in a stagnant metro WDM market (see ADVA Boosts Operating Income).

The company, citing a combination of market research and internal sources, now claims that it is number one in the European metro WDM market and number two worldwide.

ADVA's fourth-quarter revenues were €22.2 million, which were flat sequentially and down from the €24.2 million revenues it reported during the year-ago quarter. "If you look at the rest of the industry, flat is extraordinary," says Brian McCann, ADVA's chief marketing and strategy officer. "Most of the market studies out there show significant decline year-over-year."

While ADVA estimates that its addressable market shrank by 34 percent in the past year, industry analysts show the company expanded its share at the expense of competitors like Ciena Corp. (Nasdaq: CIEN). ADVA grabbed a 13 percent chunk of the worldwide metro WDM market in 2002, according to Michael Howard, principal analyst at Infonetics Research Inc. In the EMEA (Europe, Middle East, and Africa) region, ADVA did even better, doubling its market share to 26 percent (see ADVA Tops Euro Metro WDM).

Globally, however, Nortel Networks Corp. (NYSE/Toronto: NT) is still top dog with 25 percent of the $619 million market, according to Infonetics. (Note: Infonetics includes CWDM products in its metro WDM numbers.)

McCann attributes ADVA's stability and market-share gains to three main things. First, the company's business partners -- notably Fujitsu Network Communications Inc. (FNC) and Siemens Information and Communications Networks Inc. -- help it win share with large carriers (see Fujitsu to Resell ADVA Products, Fujitsu Delves Into Metro DWDM and ADVA and Siemens Team Up). Second, the carriers ADVA sells to are primarily large incumbents instead of venture-backed competitive local exchange carriers (CLECs). Finally, about half of ADVA's customers are enterprises, which spend more steadily and in more predictable amounts than carriers.

ADVA's pro forma operating income increased to €2.3 million in the fourth quarter, an improvement over the pro forma operating loss of €0.2 million in the fourth quarter of 2001. The company's pro forma profit for the quarter was €5.2 million, €2 million in the fourth quarter 2001.

And ADVA's not resting on its laurels, either. "We intend to own more than 25 percent of the metro optical networking market" in 2003, reads a statement in the company's annual report, released Wednesday. Further, the report says ADVA expects to generate "a gradual growth in revenues in 2003, despite the continuing weak demand for communications equipment."

With one-time charges added in, ADVA's actual net income was €4 million, or €0.12 a share, in the fourth quarter 2002, compared to an actual net loss of €11.7 million, or €0.35 a share, in the year-ago quarter. The higher net loss in 2001 came partly because ADVA shuttered its Cambridge, U.K., operations and recorded a one-time charge from two acquisitions.

The company's revenues for the full year 2002 dropped to €88.1 million from €90.0 million. ADVA's actual net loss was €1.3 million, or €0.04 a share, for the year, compared to an actual net loss of €116.4 million, or €3.57 during 2001.

ADVA expects revenues for the first quarter 2003 to be at the lower end of its previously issued guidance of €20 million to €25 million. The company's headcount grew to 401 in 2002, a five person climb from the 396 it employed a year ago.

The company estimates that it has now sold to about 71 carriers, up from the 47 carrier customers it acknowledged in 2001. Says McCann: "We've really made a business out of this, in contrast to a lot of our competition in the optical space, where it's a bloodbath."

— Phil Harvey, Senior Editor, Light Reading

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