Optical/IP Networks

CoSine on Comeback Trail?

Could CoSine Communications Inc. (Nasdaq: COSN) be making a comeback?

Last night, the IP services equipment maker announced it had nearly tripled its quarterly revenues from the first quarter of 2003.

While this sounds impressive, the company is growing from a very small base. This quarter it reported revenues of $6.0 million, which compares to revenues of just $2.2 million in the previous quarter (see CoSine Investors Lash Out). The company also cut its net losses on a GAAP basis to $7.7 million, or $0.79 per share, as compared to its first-quarter net loss of $8.9 million, or $0.91 per share.

Spending only $7.9 million in cash this quarter, the company ended the quarter with $76.3 million in cash and short-term investments. Last quarter it burned over $9 million of its cash.

The company reported two 10 percent customers for the quarter: worldwide carrier, Sprint Corp. (NYSE: FON), and Japanese reseller, Nissho Electronics Corp. The company did not mention any new customer wins, but Steve Goggiano, the company’s president and CEO, said he is confident it will increase its share of the IP VPN (virtual private network) market and win new customers.

When asked about prospects at AT&T Corp. (NYSE: T), Goggiano said the company was in talks with the carrier but would not comment further. AT&T had been testing gear from a competitor, Celox Networks, before the startup went out of business last year (see Is Celox Farewell an Omen?). AT&T has not publicly announced plans for a managed IP VPN service for enterprise customers.

While CoSine's executives are optimistic about the company’s VPN prospects, they note that customers are also interested in using the product for broadband aggregation and remote access. Like the IP service market, the B-RAS (broadband remote access server) market is crowded with edge routing competitors. Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) have recently announced B-RAS enhancements to their products, as they take aim at this market (see Cisco Pads B-RAS Offering and Juniper Enhances Its Edge).

Even though CoSine has cut its burn rate and increased its revenues, it's still a long way from profibility. Questions linger over whether or not the company will actually be sold. Last month, Mellon HBV Alternative Strategies LLC, CoSine’s largest institutional investor, hired an investment bank to try to sell the company (see Mellon Hires Banker for CoSine). The hedge fund, which owns about 6.7 percent of the company, has been pushing for a liquidity event (see Mellon Pressures CoSine for Sale). CoSine has resisted these attempts (see CoSine: Not Ready to Sell).

Officially, nothing has been said about the sale of the company. Neither the analysts nor the investors on the call questioned the company about a potential sale. But Goggiano did aver that the firm is open to exploring all avenues -- including mergers and acquisitions.

Shortly after opening this morning, CoSine's stock traded up $0.10 (1.7%) to $6.10.

— Marguerite Reardon, Senior Editor, Light Reading

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