Avici Hits Q1 Snag

Some postponed orders for core router vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) could cut expected first-quarter revenues by more than one fourth, the company reported today.

"Uneven customer order patterns" will lead to revenues between $6 million and $8 million for the quarter ending March 31, CEO Steven Kaufman announced (see Avici Provides Q1 Guidance). That would be down from revenues of $11.5 million in the previous quarter and on a par with revenues of $7.6 million from the first quarter of 2003 (see Avici Narrows Losses in Q4).

Analysts had expected revenues of $10.9 million for the March quarter, according to MultexNet. Avici shares were down 16 percent, to $13.67, in early trading today.

The shortfall is tied to "orders we expected would be done by the end of March" and cannot be pinned to one customer, says Esmeralda Swartz, Avici vice president of marketing. The orders are expected to resurface in future quarters, she says.

Swartz says the shortfall is not a sign of trouble with the Nortel Networks Corp. (NYSE/Toronto: NT) partnership announced in January (see Avici, Nortel Get 'Strategic'). The partnership, which has Nortel integrating and selling Avici's core routers, is progressing well but isn't expected to bear fruit for a couple more quarters.

Analyst Alkesh Shah of Morgan Stanley notes investors might have jumped the gun in raising Avici's stock price after the Nortel deal was announced. "Shares have risen ahead of fundamentals on the partnership agreements with Nortel and Huawei, which we believe will not have a meaningful impact on results until the [second half of 2004] and 2005," he writes in a research note today.

For the year 2004, Avici expects revenues to be 20 to 30 percent higher than last year's figure of $37 million. Analysts expect Avici's losses -- which coincidentally totaled $37 million for 2003 -- to continue throughout 2004.

Avici can take some comfort in not being alone. Despite signs of recovery, a number of companies have encountered revenue glitches this quarter (see Ciena Falls Short, Agere Suffers Hutch Hiccup, and Enterasys Lowers Q1 Outlook).

— Craig Matsumoto, Senior Editor, Light Reading
litbit 12/5/2012 | 2:12:34 AM
re: Avici Hits Q1 Snag What in the world motivated Nortel to go into this agreement for archaic technology? Sad thing is they had already looked at Avici before 2000 and dropped it.

Someone please enlighten me
russ4br 12/5/2012 | 2:12:31 AM
re: Avici Hits Q1 Snag What in the world motivated Nortel to go into this agreement for archaic technology?

It's the same bad decision making that led Ericsson to enter into an agreement with Copper Mountain for a BRAS box. Nortel overlook Procket, a company that has real leading-edge technology - and a company which Nortel could help to nurture its products into a future multi-chassis line. Ericsson overlook partnering with Laurel, which has a good Edge Router and is adding BRAS code.

These companies (Nortel, Ericsson) want to have all the pieces of the solution (the mirage of "end-to-end") - no matter how bad they are!

In the IP space, this approach rarely helped them win any business. Proof of this is the fact that both Nortel and Ericsson canned all their existing boxes and development efforts in 2001/2002 - due mainly because of non-interested by their customers on the gear they were developing.

- russ
wass 12/5/2012 | 2:12:23 AM
re: Avici Hits Q1 Snag Is Avici really that bad? Anyone on the inside want to comment?
mosh 12/5/2012 | 2:12:20 AM
re: Avici Hits Q1 Snag WRT to Nortel's overlooking Procket, how about Chiaro's solution? I believe overlooking Chiaro was an even worse decision...
change_is_good 12/5/2012 | 2:12:11 AM
re: Avici Hits Q1 Snag >> Is Avici really that bad?

let's just say that csco and jnpr do not have anything to worry about wrt avci.
coreghost 12/5/2012 | 2:12:04 AM
re: Avici Hits Q1 Snag
A quick explanation of "why" on Nortel/Avici

It cost nothing. Nortel didn't have to do
anything. It filled a hole in their product
line so that certain people would stop asking
questions about it.

Whatever Avici told Nortel was taken by
Nortel to be unquestionable truth.

While Nortel dropped Avici years ago, some
people within Nortel believe that Nortel
evaluated Avici as their ideal partner years
ago and should stick by that decision. The
same people can also explain to you what a great
technology Xros had and how every decision nortel
made during the bubble was correct.

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