Avici Losses Increase
Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) reported third-quarter 2001 earnings this morning (see Avici Announces Q3 Returns). And, like other system companies in the telecommunications and networking industry, its executives offered little assurance that the downturn had hit bottom.
As a result of reduced capital spending by carriers and lengthened sales cycles, Avici announced that its net loss for the third quarter widened. The news came as no real surprise, as the numbers were in line with Avici’s sharply reduced estimates. The company cut its revenue expectations in half back in September when it announced a 14 percent reduction in its head count to reduce costs (see Avici Warns, Wall Street Scorns).
The company reported a net loss of $41.2 million or $0.83 a share, compared to a net loss of $23.6 million or $0.70 a share, for the same quarter a year ago.
Before one-time charges and non-cash, stock-based compensation, Avici said it lost $19.4 million, or $0.39 a share. Analysts polled by First Call expected a loss of about $0.40 per share. Revenues for the third quarter were 10.3 million, compared to $4.3 million a year earlier. Before it warned last month, Avici expected revenues of up to $23.5 million.
The company also took a one-time charge of $18.3 million, of which $17.2 million was for excess and obsolete inventory. The remaining $1.1 million was associated with restructuring and last month's headcount reductions. Since June, Avici has reduced its work force to 340 employees from 407.
Avici President and CEO Steve Kaufman said he expects revenues to remain flat over the next quarter and through the first half of 2002, with growth expected in the second half of next year. And he told analysts on the call that the current capital spending conditions have reduced visibility.
“We are not providing guidance at this time,” Kaufman told analysts on the conference call this morning. “But we expect core routing conditions to be flat for the remainder of 2001. Carriers are pushing spending decisions out, but we remain confident in the IP market and expect momentum to pick up in the second half of next year.”
While Kaufman also said that carriers are seeing Internet growth rates of 80 percent to 100 percent, the big issue on analysts’ minds was Avici’s customer base (see Avici's Quarter Is All AT&T). This quarter, the company realized revenue from five customers, with over 50 percent of its revenue coming from three of them: AT&T Corp. (NYSE: T), Enron Corp. (NYSE: ENE), and the United States Government (no Website). Of these three customers, AT&T is the only one to have deployed the flagship TSR scaleable routers in live deployments. The other four customers are not yet fully deployed. The company also said that it is currently in 13 trials.
Kaufman blamed the losses this quarter mainly on the reduction in carrier spending, which has resulted in lengthened carrier evaluations and delayed ordering. Specifically, he said that sales to Enron were a disappointment and he doesn’t expect them to pick up significantly over the next quarter. But he also said that buildouts at AT&T continue to look healthy in Q4 and beyond.
The company also introduced its second product this past quarter. The SSR stackable switch is expected to double Avici’s $1 billion to $1.5 billion market opportunity next year (see Avici Intros Tiny TSR). The new router is essentially a TSR cut in half. This smaller footprint will allow it to be deployed in smaller, regional points of presence and in ISPs, said Kaufman.
Avici shares were trading up 0.10 (3.64%) at 2.85 this morning. — Marguerite Reardon, Senior Editor, Light Reading