Optical/IP Networks

Avici Hints at Bigger Things

You can almost hear the frustration in the voice of Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) CEO Steve Kaufman as he runs through his firm's latest quarterly results (see Avici Cuts Losses in Q2).

Revenues are up and losses have been cut, but everyone wants to know when the company might shift out of first gear and leave some rubber on the road. Kaufman sounds like he desperately wants to promise that all will come good, but he can't.

All he can say at the moment is that he's super-dooper confident (we're paraphrasing) that his company's reseller relationships with Chinese snooper Huawei Technologies Co. Ltd. and book-keeping expert Nortel Networks Ltd. (NYSE/Toronto: NT) will deliver further business in the near future (see Will Spying Charges Hurt Huawei? and Nortel Gets Federal Subpoena).

So confident, in fact, that Avici is sticking with its full year revenue projections of making a 20 percent to 30 percent gain over 2003's $39.4 million total. That will put the full year's revenues at between $47.2 million and $51.1 million, and so far this year Avici has raked in $19.1 million.

That means the core router vendor reckons it can hit revenues of between $28.1 million and $32 million in the second half of the year. Not only is that a massive leap from the first half of the year, but Kaufman and his team don't have enough short-term visibility to offer revenue guidance for the third quarter. "It's impossible to say when new contracts will be signed," says the CEO.

The promise of things to come wasn't enough to stop Avici's share price from dipping by 55 cents, more than 5 percent, to $9.40 following today's conference call.

In the meantime, Avici has Huawei to thank for much of its current income, thanks to a 10-router deal struck earlier this year (see Huawei Partnership Boosts Avici ). The Chinese firm was, along with Avici's long-time carrier customer AT&T Corp. (NYSE: T), a 10 percent-plus customer, and one analyst on today's conference call estimated that Huawei was responsible for nearly half of the second quarter's $12.1 million revenues, though Avici didn't confirm that figure.

Nortel is Avici's third and only other significant customer, but didn't make the 10 percent-plus club in the three months to June 30, meaning it contributed less than $1.2 million in revenues in the latest quarter.

Kaufman, though, is adamant that Nortel is about to deliver further business to add to the SURFnet deployment (see SURFnet Picks Nortel, Avici, Telindus), and he says the "pipeline" is so full that he can't even guess which region will deliver the new business.

Avici's management also noted that increasing business from channel partners means a squeeze on margins. CFO Paul Brauneis told today's conference call that second-quarter gross margins are just below 50 percent but are likely to drop to the mid-40s as further OEM business boosts the revenue figures.

All the more reason, then, to keep operating costs down, and Brauneis said that lower costs in the second quarter helped Avici cut its net loss to $6.3 million, compared with a net loss of $11.3 million a year earlier.

The revenues of $12.1 million are 23 percent higher than the $9.8 million recorded a year earlier, and 74 percent better than the $7 million in the first quarter of this year (see Avici Hits Q1 Snag).

Avici has cash and investments amounting to $84.9 million (as of June 30) and no debt.

— Ray Le Maistre, International News Editor, Light Reading

For more info on the state of industry financials, check out the coming Light Reading Live! event:

  • Light Reading's Telecom Investment Conference, in New York City, November 10.

  • coreghost 12/5/2012 | 1:25:50 AM
    re: Avici Hints at Bigger Things Wow. Nice article. Company grows revenue, increases channel sales [indirectly confirming new customer deployment] and grows

    On the other side, nortel has come through with
    nothing. Surfnet was a giveaway, ATT is in
    decline as a source of revenue and they are now
    promising margins down at 40% (which is not good).

    Their only likely source of future growth is
    Huawei and I suspect any growth this year is
    entirely due to the single Huawei contract.

    As a standalone business, its still a mess. The
    business is still kept afloat by its diminishing
    pile of cash from the IPO and the fundementals
    don't support the current stock price.

    The deal with Huawei is a good thing and Avici's
    successful partnership with Huawei is the only
    news worth even thinking about.

    turing 12/5/2012 | 1:25:50 AM
    re: Avici Hints at Bigger Things Wow. Nice article. Company grows revenue, increases channel sales [indirectly confirming new customer deployment] and grows while Procket, Hyperchip, Pluris, Chiaro have all died. But instead LR writes it as a bad result. Nice job.
    calipers 12/5/2012 | 1:25:49 AM
    re: Avici Hints at Bigger Things Apparently not only is Lightreading being very non-professional in its subjective reporting and innuendos its also quelching freedom of speech by deleting old messages regarding this article. Come on guys you might run the web site you surely don't control our minds.
    Truelight1 12/5/2012 | 1:25:39 AM
    re: Avici Hints at Bigger Things EOM - come on how long have they been around - go die and move on.
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