Avici Target out of Reach

Core router vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) suffered a financial setback today as its share price fell following a business update (see Avici Provides Q3 Outlook).

Avici expects revenues of between $3 million and $4 million in its third quarter ending September 30, compared with $12.1 million in the second quarter (see Avici Cuts Losses in Q2). As a result, the company doesn't expect to achieve its revenue target for the full year of between $47.2 million and $51.1 million. In the first half of the year Avici had revenues of $19.1 million, which meant it was aiming for more than $28 million in the second half of the year to hit that target.

The news led to a hammer blow to the vendor's share price. In early trading it had fallen $2.54, more than 27 percent, to $6.83, valuing the company at $87 million.

The update is in stark contrast to the vendor's earlier optimism. In late July CEO Steve Kaufman was still very confident that additional business from partners such as Huawei Technologies Co. Ltd. and Nortel Networks Ltd. (NYSE/Toronto: NT) would come through and deliver the required revenues (see Avici Hints at Bigger Things).

It now appears some of those deals have been delayed, leading to the hole in third-quarter revenues. "We had expected some orders to come in from our channel partners, and the timing was pushed out," says Esmeralda Swartz, vice president of marketing.

Avici officials say the orders aren't lost, just postponed. "Carriers are very conservative with their spending in the second half," Kaufman told Light Reading. "That's affected our [established] customer base as well as the new opportunities we're pursuing." Avici knows it is in an unpredictable market, where decisions can be halted and stalled many times before a final purchase order is signed. Even in July, Kaufman said there wasn't enough visibility to give revenue guidance for the third quarter. "It's impossible to say when new contracts will be signed," the CEO said at the time.

There was at least one spark of good news for the company today, as long-term customer AT&T Corp. (NYSE: T) signed up for further network expansion using Avici routers (see Avici Expands AT&T's IP Backbone).

Avici's due to report its third-quarter results on October 21.

— Ray Le Maistre, International News Editor, Light Reading

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andropat 12/5/2012 | 1:14:46 AM
re: Avici Target out of Reach I am simply amazed. How are these guys still around? ATandT has been their lifeline since day one for god knows what reason but they still manage to stay around.

I don't care what they have.. there is no room for a third player.. be done already! It's a cisco/juniper world. The risks, training, etc., are too great for a third player. These delays in the orders will play right into the hands of cisco/juniper now.

materialgirl 12/5/2012 | 1:14:45 AM
re: Avici Target out of Reach Thanks Pat, you answered my question just as I was writing it.
materialgirl 12/5/2012 | 1:14:45 AM
re: Avici Target out of Reach CSCO sucking wind, now AVCI. Will JNPR blow up this quarter too, or take over the market? Seems as though we are at a tipping point. If AVCI is worth more dead than alive, who is the buyer? NT?

Perhaps AVCI does have the most scalable router alive. Does this mean that other factors, like product breadth or company staying power, are what really determine purchase decisions?
firstmile 12/5/2012 | 1:14:43 AM
re: Avici Target out of Reach Pat,
Agree, agree, agree...
But what is even more amazing to me is that new core router companies still get funded each month? Yet Avici has a pretty good product, a few good customers, and they have been around since ~97.
Who believes that this market is big enough to support 4 or 5 core router companies?
andropat 12/5/2012 | 1:14:43 AM
re: Avici Target out of Reach the new companies being funded I believe are being funded in much different and more "inventive" ways than what we all saw in the late 90s.

You'll see a lot more private monies in the mix these days as investors want to see "skin in the game"... of course companies like Procket were around given the time that Tony left Juniper to start Procket (late 90s) and his name alone. Also, investing in new technologies should never stop. "Startup" router vendors are being funded in hopes of a breakthrough technology at the right place at the right time. Also, I guarantee investors want a clear "exit" strategy. Hell even Procket got bought by Cisco ( a competing router vendor)... talk about exit strategy :-)

Others will need something extremely compelling. We are seeing the dimise of Hyperchip, caspian, and so on due to the fact of simple economics.

Juniper and Cisco do not suck badly enough to justify full-scale replacements. No doubt Avicis of the world will get some play here and there in small amounts due to relationships and keeping cisco/juniper on their toes. No way ATT would do a mass-scale deployement of Avici technology.. just no way! I am truly surprised they lasted this long. They have decent technology depending on who you ask about their products. But the multi-chassis is old from what I hear (copper versus VCSEL), not needed (which is why they went downstream), and simply not being deployed which does not allow them to be entrenched at any "carrier" scale. They have cool "features"... not enough anymore.

stomper 12/5/2012 | 1:14:42 AM
re: Avici Target out of Reach Pat,

With all due respect, some of your information
is just not correct:

1. While using electrical interconnect instead
of optics is more restrictive in channel
length, it is not inferior in any other way or
"old". On the contrary, for the forseeable future
electrical interconnect is cheaper, just as fast,
and consumes less power.
2. Avici has and continues to be deployed in
a major way ... if only by T. It is public
knowledge that they are deployed in over 15
of their larger POPs.


Disclosure: I am not an Avici employee
Tony Li 12/5/2012 | 1:14:41 AM
re: Avici Target out of Reach
Re: new startups in this area

I suspect that the thinking is that this is a growing market with high margins and thus is still relatively attractive to many players. Admittedly, the absolute size of the market today is not sufficient for a wide variety of players, but it's clear from other analogous markets (e.g., PSTN switches) that the market will eventually support a decent selection. The customers are certainly there and are aware of the implications of the duopoloy on their margins.

c_headed 12/5/2012 | 1:14:39 AM
re: Avici Target out of Reach Excellent points Tony (I assume you are THE Tony Li). Any one know what the real fate of Charlotte's Web is/was? I thought they were out out of the game or mothballed but I see that LR's latest premium research on the core routing market purports to discuss CWNT. Any insight?
dljvjbsl 12/5/2012 | 1:14:37 AM
re: Avici Target out of Reach
the absolute size of the market today is not sufficient for a wide variety of players, but it's clear from other analogous markets (e.g., PSTN switches) that the market will eventually support a decent selection

It was common knowledge in the CO market that the class 4 and higher market could not sustain a company. Without a strong class 5 presence, a CO company could not survive. The higher level switches' development costs were supported by the related class 5s. Even then, there were only two major players in North America.

I don't know how relavent this is the current router market but an analogous statement would be that a pure core company would have a hard time surviving. The analogy may not be entirely accurate but it does point out that a comparison to the telephone switch market may not be useful
SIVROCX 12/5/2012 | 1:14:33 AM
re: Avici Target out of Reach The reason that Avici still has footprint is because once installed, the box is so heavy it can't be removed without a crane! I think their strategy was brilliant. +£
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