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Carrier Access Hunkers Down in Q4

Light Reading
News Analysis
Light Reading
1/26/2005

Broadband equipment vendor Carrier Access Corp. (Nasdaq: CACS) had a tough fourth quarter, due mainly to the lingering effects of the marriage of two of its major customers, Cingular Wireless LLC and AT&T Wireless. But the company did not disappoint Wall Street much, and it is forecasting far better days ahead.

The Boulder, Colo.-based company reported a net loss of $1.5 million, or 4 cents per diluted share, for the quarter ended December 31, compared with earnings of $1.5 million, or 5 cents a share, during the same quarter last year. Thomson First Call analysts had expected a loss of only 3 cents per share.

Last October’s $41 billion merger of Cingular Wireless with AT&T Wireless, then the nation's second- and third-largest mobile phone companies, has put a chill on new equipment sales as Cingular works to “rationalize” the two networks. Cingular added 1.8 million customers last quarter as a result of the deal, bringing its customer base to 49.1 million.

However, much of this comes as old news. The merger had been foreseen for a while. And Carrier Access warned of weak fourth-quarter revenues back in December (see Carrier Access Stumbles in Q4).

Carrier Access reported revenues of $20.4 million for the quarter, not too far off analysts’ expectation of $20.9 million. That's down from $22 million in revenue the company reported in the third quarter.

“We had benchmarked those revenues for last quarter,” says Kaufman Bros. LP analyst Bill Choi, who notes that the Cingular/AT&T merger "has been the problem since middle-year 2004."

Sales to wireless customers still comprised 55 percent of Carrier Access's quarterly revenues, and 59 percent of full-year revenues (it was only 33 percent of full-year revenue in 2003), and the company expects a return to form in the growth of its wireless business in 2005.

“We expect a 20 percent increase in revenue in 2005 over 2004 due to wireless and VOIP revenues,” says Carrier Access CFO Nancy Pierce. “We expect to see new product sales into our existing wireless customers in the last half of the year.” Pierce says the company’s forecasts do not factor in any new wireless customers.

Choi says the real surprise was the poor performance of the company's enterprise and government businesses during the quarter. The company warned analysts earlier this month that losses might be wider than expected due to "delayed shipments in its government and fiber-to-the-premises businesses."

Carrier Access’s full-year revenues hit $101.4 million, up 62 percent from $62.6 million in 2003. Yet far less of that top line reached the bottom line in 2004 –- earnings fell to $946,000, or 3 cents per diluted share, from 2003’s $2.5 million, or 9 cents per diluted share. The company says the results reflect a half-a-million-dollar charge related to its acquisition of Paragon Networks in late 2003.

Carrier Access provides wireless, VOIP, and broadband access equipment to wireless carriers, and to a lesser extent, enterprises and government. Its wireless customers include Cingular, T-Mobile USA, and Verizon Wireless, either directly or through OEMs such as Nortel Networks Ltd. (NYSE/Toronto: NT), Ericsson AB (Nasdaq: ERICY), and Lucent Technologies Inc. (NYSE: LU).

The company’s stock opened at $7.63, down $0.01 from Tuesday’s close. Earlier this year, Carrier Access was added to the Light Reading Index.

— Mark Sullivan, Reporter, Light Reading

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