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Avici Warns, Wall Street Scorns

Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) today cut its third-quarter revenue estimates by more than half and fired about 55 employees. The company blamed lower customer orders and market conditions for its actions.

The core router maker expects quarterly revenues to be between $9 million and $10 million, down from its earlier estimates of $22.5 to $23.5 million. The lowered estimate signals the end of Avici's streak of six consecutive quarters of revenue growth.

In July, Avici reported second-quarter pro forma loss of $11 million, or $0.23 cents a share, on $21 million revenues (see Avici's Quarter Is All AT&T).

To trim operating costs Avici is cutting its workforce by about 55 employees, or 14 percent. The company also plans to take a $15 million to $18 million charge against its third quarter earnings related to excess inventory and restructuring costs.

Avici says its pro-forma net loss per share for the three months ending September 30, 2001 will be in the range of $0.40 to $0.42 cents a share. Wall Street analysts expected that Avici would lose $0.23 cents a share during the quarter, according to Thomson Financial/First Call.

The source of Avici's woes is easy to spot. Its customers are spending less on equipment for their networks which means they aren't ordering as many big routers.

About 85 percent of Avici's revenues came from AT&T, Enron, and Qwest during its first fiscal quarter of 2001 (see Crunch Time at Avici? ). Qwest and AT&T made up more than 10 percent of Avici's revenues in the second quarter. That's good company to keep, but Avici's customers, like those of other companies, are struggling to cope with the soft demand for broadband services in a slowing economy.

For example, Enron has cut some 350 jobs from its broadband unit since April. On Monday, Qwest fired 4,000 workers and cut its 2001 capital spending budget by $300 million and its 2002 budget by $2 billion.

"These cuts effect Avici substantially more than they do competitors such as Juniper Networks Inc. (Nasdaq: JNPR) and Cisco Systems Inc. (Nasdaq: CSCO)," says Merrill Lynch & Co. Inc. analyst Sam Wilson, who has been bearish on Avici for months. "Those companies are cash-flow positive while Avici is losing millions each quarter."

But slowing capital spending is not Avici's only worry. With more competitors than ever looking to play in the big router market – including Pluris Inc., Caspian Networks, and Hyperchip Inc. – Avici will have to fight even harder for each sale.

The realization that Avici may be headed for tougher times has taken a toll on its stock price. Avici shares fell $0.72 to $2.06 in early afternoon trading on Monday, bringing the company's market capitalization down to about $101 million.

"I don't see any near-term catalyst to drive the stock price higher," says Wilson.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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skeptic 12/4/2012 | 7:51:39 PM
re: Avici Warns, Wall Street Scorns The source of Avici's woes is easy to spot. Its customers are spending less on equipment for their networks which means they aren't ordering as many big routers.
====================

No, thats not the source of Avici's problems.
Avici's problem is that it isn't growing
its customer base and some potential customers
are uninterested in buying the product Avici
is building and/or working with Avici.

The plans of several startups to come out of
stealth next year is also creating a dis-incentive
for further Avici deployments to new customers.

But if all the startups fail to deliver, Avici
could still have a role to play. But it has
to get another large customer.





cfaller 12/4/2012 | 7:51:38 PM
re: Avici Warns, Wall Street Scorns skeptic, haven't we gone through this already?

http://www.lightreading.com/bo...

Now, 5 months later, carriers are still not buying from AVCI. Those bandwidth management problems you were warning about haven't panned out, have they? Do you wonder why?
skeptic 12/4/2012 | 7:51:38 PM
re: Avici Warns, Wall Street Scorns
Look, I'm not interested in trying to convince
you of anything anything. All I can say is that
the ISPs I talk to don't say the sorts of
things that you say.

I've repeatedly said that you keep confusing
carrier revenue with carrier traffic. And
that your ideas that the dot-coms were responsible
for nearly traffic growth on the internet are
wrong.

If you go talk to the carriers, you will find
that traffic is still increasing.


detailsdetails 12/4/2012 | 7:51:35 PM
re: Avici Warns, Wall Street Scorns skeptic,

which vendors do you have in mind when you say come out of stealth?

thanks
pablo 12/4/2012 | 7:51:34 PM
re: Avici Warns, Wall Street Scorns
Procket being a prominent one.
Sparxe 12/4/2012 | 7:51:33 PM
re: Avici Warns, Wall Street Scorns Right now its easy for every CEO to blame the economy on their woes. Someday that will end and then its going to be "show me" time again. I'm an investor in AVCI, but I still have my questions about them. Are they making product on budget, on time. Is it holding up? Do they have many seasoned marketing people? Salespeople that can make connections? Good product support? It not a tech fair out there. It's business and you gotta deliver.

My bet is AVCI will be merged into a larger outfit. Too many small companies have the hot tech, but lack the marketing muscle needed to land and hold big accounts. Verizon is a good one for AVCI to make their bones with. Five Verizons at once would bury them, in my estimation ...

Sparxe Nj
reoptic 12/4/2012 | 7:51:30 PM
re: Avici Warns, Wall Street Scorns Procket, Caspian, Pluris-- how are they going to keep getting funded when Juniper is only 2x cash and Avici is .5x cash...where is the return? Do the big market that is around anymore? And building one of these core puppies ain't so easy or cheap, see Ironbridge, Netcore, Nexabit, Optera Packet Core....

Just like the MSPP space, gonna see lots of consolidation and bankrupcies...
skeptic 12/4/2012 | 7:51:26 PM
re: Avici Warns, Wall Street Scorns Procket, Caspian, Pluris-- how are they going to keep getting funded when Juniper is only 2x cash and Avici is .5x cash...where is the return? Do the big market that is around anymore? And building one of these core puppies ain't so easy or cheap, see Ironbridge, Netcore, Nexabit, Optera Packet Core....
-----------------------------------

The expectation is that one or two of the
companies will survive. And those that
survive will get a good rate of return.

Its no different than the metro-market where
there is a huge number of companies building
products and anyone with any sense knows that
most of them will be out of business. Its just
that in this space there are going to be fewer
companies.

And its because building a useful core router is
a difficult problem that the money-people see
a long-term value in this type of product.

Nortel and Alcatel have proved that they can't
build a core router. The customers are unhappy
enough with cisco and juniper that there is room
for at least a third player in the market. And
for various reasons, Avici is going to have a
tough time becoming that third player. There
is a reason why they are not gaining new
customers and its not necessarly the product.





watchtower 12/4/2012 | 7:51:14 PM
re: Avici Warns, Wall Street Scorns Skeptic, you wrote: "And for various reasons, Avici is going to have a tough time becoming that third player. There is a reason why they are not gaining new customers and its not necessarly the product."

What are these "various reasons?"
froggy 12/4/2012 | 7:51:09 PM
re: Avici Warns, Wall Street Scorns From what I heard, Alcatel is still trying and their 7770 is rumored to be tested by Qwest and Sprint. Only customer I read about is France Telecom.
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