Optical/IP Networks

Avici Boosts Top Line

Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) this morning reported a slight uptick in revenues during in the third quarter of 2003, but the company is still losing money and would not provide financial guidance.

Gross revenue for the quarter ended September 30, 2003 was $10.5 million compared to $9.8 million in the previous quarter, a sequential quarterly increase of 7 percent (see AT&T Makes Avici's Quarter). Revenues grew 29 percent sequentially from the first quarter to the second quarter of 2003.

Avici ended the quarter with plenty of cash -- about $60 million -- and no debt. But it is still losing money: Its GAAP net loss was $9.1 million, or $0.75 per share, which included several charges. Excluding these charges and credits, the net loss was $8.7 million, or $0.72 per share.

This is actually an improvement over the previous two quarters. In the second quarter, Avici reported a GAAP net loss of $11.3 million, or $0.92 per share. And in the first quarter, its GAAP net loss was $15.0 million, or $1.21 per share.

Avici's gross margins increased to 63 percent, up from 55 percent at the end of June. This expansion in margins was due to the use of $550,000 worth of excess materials, but chief financial officer Paul Brauneis said he doesn’t expect gross margins to continue at this level. Instead, he predicts they will fall back into the high 50s. The company also reduced its headcount during the quarter, ending with 228 employees, down from 249 in June.

AT&T Corp. (NYSE: T), which was one of three customers to contribute to Avici's product revenues, was once again the only 10-percent customer during the quarter. The carrier also made up the bulk of Avici's revenue, said CEO Steve Kaufman.

Kaufman also said that Avici's partnership with Huawei Technologies Co. Ltd. is moving along nicely, and he expects revenues to ramp up in 2004 (see Avici Joins Huawei for China Push). Avici is currently working on getting its Chinese Ministry of Information Industry (MII) certification, which is a requirement for selling telecom gear in China.

While the company seemed confident about its long-term prospects in the core routing market, it would not provide short-term guidance.

"Regarding future guidance, visibility for Q4 remains limited given end of year purchase cycles and continued industry turbulence so we will not be giving guidance," said Kaufman. "Looking forward to 2004 we are optimistic, and we expect to gain share and grow faster than the 10-15 percent growth rate expected for the core routing market."

The company’s stock was up $0.44 (7.71%) to $6.15 per share in morning trading.

— Marguerite Reardon, Senior Editor, Light Reading

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