Avici's Quarter Is All AT&T

Both in technological and financial terms, Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) continues to be "bleeding edge." That is, the company continues to bleed red ink while in search of new customers in the slowly developing terabit router market.

Avici today announced a second-quarter pro forma loss of $11 million, or 23 cents a share, on $21 million revenues, representing its sixth consecutive quarter of revenue growth. The numbers were slightly above analyst consensus predictions of a $0.24 per share loss on $19 million revenues. And the results compare favorably with last year’s second-quarter pro forma loss of $18 million, or 48 cents a share, on $2.2 million revenues (see Avici 'Pleased' With Q2).

Avici’s second-quarter net loss was 32 cents a share. Although the figure looks considerably better than last year’s $5.11 net loss, the numbers are distorted because Avici had not yet gone public in the second quarter and there were far fewer shares used to calculate the loss. Gross profit margins for the quarter were 45 percent, compared with a year-ago figure of 15 percent.

Avici burned $63 million cash between December 31 and June 30. Although the company still has $167 million in the bank, some analysts wonder whether it will need to raise more money before becoming cash-flow positive. Although Avici officials expect the company to burn more than $20 million in the third quarter, they have a “goal of profitability over the next year or so.”

CEO Steve Kaufman says he expects third-quarter revenue to grow between 5 percent and 10 percent over the second quarter. But due to the hazy market conditions, he is unable to predict growth beyond that.

The cloud of uncertainty is a heavy burden. “The biggest concerns are the slowdown in traffic and excess capacity,” says analyst Christin Armacost of SG Cowen Securities. “There’s not much demand yet for terabit routers.” She notes that the category accounts for only about 5 percent of the overall router market.

Regarding the concentration of revenue among a small number of customers, company officials noted without elaboration that 75 percent of revenue came from customers who account for at least 10 percent of revenue each. Although AT&T Corp. (NYSE: T) still is the only customer that has moved beyond testing to commercial deployment, Avici officials said another customer is very close to that stage.

Avici still has very little competition in the terabit space. Pluris Inc. is the only other vendor with a terabit product in field tests, but analysts say the privately held concern is trailing Avici in generating customers. Several other vendors, however, say they have field trials planned for terabit products before year-end.

Armacost has a Neutral rating on Avici. For Avici executives to solve the company’s sagging woes, she says, “They need to move their trial customers to commercial deployment.”

Meanwhile, Avici is also being distracted by several shareholder lawsuits, which often plague companies whose high-flying stock crashes (not exactly uncommon in the current optical environment). When the company went public a year ago, Avici’s stock zoomed to a first-day close of $96.75 before peaking at $174 a week later. The stock now languishes just a tad above a low of $5.04 when the stock bottomed out in June.

The plaintiffs’ lawyers in Avici's shareholder suits claim underwriters Morgan Stanley Dean Witter & Co. and Lehman Brothers solicited and received "excessive and undisclosed" commissions from investors in exchange for large blocks of Avici shares. The suits also claim the underwriters required those who bought IPO shares to purchase additional shares at predetermined prices that were above the IPO price (see AMCC, Avici Face Lawsuits).

Avici’s stock was at $5.79 in early Friday trading.

- Tom Davey, special to Light Reading
http://www.lightreading.com Movers and shakers from more than 100 companies – including Avici – will be speaking at Opticon 2001, Light Reading’s annual conference, being held in San Jose, California, August 13-16. Check it out at Opticon2001.

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skeptic 12/4/2012 | 8:04:00 PM
re: Avici's Quarter Is All AT&T
There are customers for terabit routers, but many
of them are disinterested in working with Avici.
When people have a negative experience with a
company or that company shows up trying to tell
the customers what they want, that company is
not going to be able to sell to those people

And its best to remember that Avici went IPO
mostly because nortel walked away. And the
rumor is that they walked away because avici
was so difficult to deal with.

As far as competition, its going to come from
the newer companies (caspian and some of the
stealth ones for next year). Pluris has been
around as a startup so long without having
anything, I really have to wonder how real
they are.
broadbandboy 12/4/2012 | 8:03:56 PM
re: Avici's Quarter Is All AT&T Avici has one ace in the whole,

A shipping core router with a true, scalable architecture. By that I mean they can connect two or more chassis without using I/O (revenue generating) ports in the process. And they can support 10 Gig interfaces.

No one else has been able to deliver that so far. Non-scalable routers (Cisco, Juniper) require forklift upgrades every 18-24 months or so.

I know there are lots of things to fault about Avici; size, weight, bi-sectional bandwidth limitations, degree of blocking, old technology, etc.

But the core router market is a very tough nut to crack - look at how many have tried and how few have gone anywhere.

It must help to differentiate your products from every other company in the world, even if AT&T is the main source of revenue.

What do you all think?
D&K 12/4/2012 | 8:03:55 PM
re: Avici's Quarter Is All AT&T I almost to forgot to take my daily jab at Cisco.

When dealing with a vendor that has the propensity for telling the customer what he wants, look no further than Cisco. Their arrogance hurts my feelings.

I would much rather deal with anyone Avici can bring to the punch bowl than listen to another Cisco rep go through another round of explaining how they can deliver dial-tone on AVVID, and how stupid I would be for listening to anyone else.

Call me stupid.

There. I feel much better.

D&K 12/4/2012 | 8:03:55 PM
re: Avici's Quarter Is All AT&T I agree. If Avici can keep At&T happy and sell product to them, then I believe that have something that none of the others can currently deliver.

Cisco surely cannot, Juniper probably will and a hole bunch of others will arrive when then need arrives.

Alcatel has a BNR in field trials in Europe, anyone know how it's doing? Supposed to support 1g, 10g, 40g, etc at 5-10 terrabits (3 23" racks at this point - sounds a little cumbersome) plus MPLS, traffic shaping and all of our favorite buzzwords.

Wonder what it and Avici look like side by side?

skeptic 12/4/2012 | 8:03:53 PM
re: Avici's Quarter Is All AT&T The people at Avici deserve lots of credit
for being moderatly successful where lots of
others have totally failed.

And they could still do well if the newer startups
in the terabit space fail to deliver.

The sad part is, that if they had just treated
customers and partners reasonably, they would
be doing a whole lot better than they are.

And a small company (or a startup) can't afford
to be as arrogant as they were. Cisco treats
people badly and doesn't listen, but they
are "cisco" and there is little anyone can do about it.

And as far as arrogance goes, Juniper is catching
up to cisco quickly. In my opinion, the problem
at Juniper seems to be a growing tendancy to
believe their own hype and not listen to

As far as scalability goes, you have to seperate
what Avici has architected from what they have
actually tested. And what they have tested
would seem to be a whole lot smaller than talking
to them would indicate.

skeptic 12/4/2012 | 8:03:52 PM
re: Avici's Quarter Is All AT&T Alcatel has a BNR in field trials in Europe, anyone know how it's doing? Supposed to support 1g, 10g, 40g, etc at 5-10 terrabits (3 23" racks at this point - sounds a little cumbersome) plus MPLS, traffic shaping and all of our favorite buzzwords.

I would guess its some sort of ATM product
that they have retrofitted to be an IP router.
You know, take an old ATM switch, build a new line
card for it, buy a routing software package,
throw it on and claim victory. Alcatel has
captive customers who will buy it regardless.

There has not been a word about the product
(in public) since the end of last year that
I've seen. Thats not a good sign.

badlandstroy 12/4/2012 | 8:03:51 PM
re: Avici's Quarter Is All AT&T Freeky man - Very Freeky!!!!
optical_1 12/4/2012 | 8:03:50 PM
re: Avici's Quarter Is All AT&T Juniper (Current qtr):

200+ revenue (10 times of avici)
Has lots of customer
Market Cap : ~ 8B
qtr-to-qtr : less revenue

20+ revenue
Has 2 customer (AT&T)
Market Cap : 250 Mil
qtr-to-qtr : Revenue increasing
Has a working oc-192

Compared to juniper, avici's value is very less.
Any comments ?

hardcore router 12/4/2012 | 8:03:39 PM
re: Avici's Quarter Is All AT&T Mr. skeptic, I suggest you to sell all your JNPR stocks.
you are really in the wrong way.

it is fact that JNPR stock went down from 240$ to 24$ (-90% !!!)
their direction is DOWN.
customers are running away from them and you could see it in their latest announcement.

Avici will overcome.
about cisco - dead duck.

JERRY11 12/4/2012 | 8:03:38 PM
re: Avici's Quarter Is All AT&T If that is so, why didn't participate in the terabit test by lightreading
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