Crunch Time at Avici?

For its first fiscal quarter of 2001, Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) nearly matched its total sales for the year 2000. But the firm also posted a loss per share and predicted the same for next quarter -- and the company's burn rate is starting to become a concern for many analysts.

The firm announced a pro forma net loss of $11.8 million, or 24 cents per share, on revenues of $15.7 million for the quarter. Revenues are up 78 percent sequentially and 100 percent over the same quarter last year, whereas losses declined from $13.8 million during the same period last year. Avici's entire sales for 2000 were $15.9 million.

Citing costs required to ramp up the company's scaleable core routers, executives told analysts this morning to expect a similar net loss per share of 20 to 24 cents next quarter, on revenues of $18 million to $19 million.

The company's burn rate is about $30 million per quarter, executives say. And present cash, securities, and investments are $214.3 million.

Analysts say Avici is approaching crunch time, when it needs to land some key new customer accounts to demonstrate it can make it to profitability. "R&D and expenses are at a run rate designed for a higher set of revenues," says analyst Nikos Theodosopoulos of UBS Warburg.

That's why analysts on this morning's conference call grilled Avici about just how it expects to start earning more money. The company is still relying on just three carriers for about 85 percent of its revenues -- AT&T Corp. (NYSE: T), Enron Broadband Services Inc., and Qwest Communications International Corp. (NYSE: Q). And of these, just one -- AT&T -- is actually using Avici routers in its live network. The others are in trials, meaning they've committed to Avici and bought its routers but haven't put them onto their commercial networks.

Avici claims it has at least seven more customers in the pipeline, including Williams Communications Group (NYSE: WCG). But in many instances, the carriers require a lengthy evaluation process of nine months to more than a year before signing on the dotted line. That cycle is being stretched out even more with carriers' current cost constraints. Indeed, Avici is stuck right now with $10 million to $11 million in deferred revenue.

Avici claims sales have been boosted by its ability to add port density, adapt to gigabit Ethernet, and scale to OC192c (10 Gbit/s) in its routers without having to replace the main chassis. Company execs contend that routers from Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) are often pushed to the network edge once Avici takes over the core.

But the high-speed routing company is still only a blip on the screen of Juniper and Cisco. Research firm The Dell'Oro Group has estimated that Avici held one percent of the core router market in the fourth quarter of 2000 (see Report: Juniper Still Gaining On Cisco).

Avici officials point to improvements in gross margins ($6.7 million for the quarter, up 23 percent from the preceding quarter) and net losses (down about 6 percent sequentially) as evidence that it's progressing on plan.

At midmorning, Avici shares were trading at 14.30, unchanged from yesterday's level.

- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com
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roxynewton 12/4/2012 | 8:32:50 PM
re: Crunch Time at Avici? Comments seem questionable (even for an Avici Bigot)...
I would hardly classify $10.8 Million in Deferred revenue as being stuck... This was clearly explained during the conference call as product which was shipped and invoiced prior to the end of the quarter, but new revenue recognition rules require Customer Acceptance and this will be within normal 30 day cycles... It was also pointed out that this would be recognized during Q2... $10.8 Million already committed toward their Q2 goal of $18-$19 Million... Not a bad problem !!! Burn rate of $30 Million needs to be offset with Revenue streams... With greater than $200 Million in Cash and $11-$12 Million in quarterly loss, Avici can run for a number of Years...
It is clear that this site is no fan of Avici... But you should take care not to continue to misrepresent the facts...
Steve Saunders 12/4/2012 | 8:32:49 PM
re: Crunch Time at Avici? roxynewton,

We're not "fans" of anyone. It's not our job to be fans. We're journalists, and this is our analysis.

I don't see any misrepresentation of facts in this story. That's a serious accusation to sling around in such cavalier fashion.

roxynewton 12/4/2012 | 8:32:49 PM
re: Crunch Time at Avici? No mention of the fact that Avici beat the street AGAIN and they also posted sales ~$2 Million higher than consensus estimates...

No mention that 2001 projections were reaffirmed (Must be because this isn't news in this environment of continous lower guidance...)

No mention that TSR cabinets are shipping with more cards and that cards are being ordered for existing cabinets which continue to improve profit margins...

No memtion of the 7 additional customers which are in trial above and beyond the core customers (AT&T, Quest & Enron)

No mention that Enron has completed Lab test and is now deploying field trials...

No mention that Williams has started to buy after being on hold for some time...

I an suprised there was no mention that Avici did not participate in Lightreading testing...

Quotation of 1 analyst out of seven (must make a trend)...

Just AWFUL unbalanced coverage with no broad context...
redbull 12/4/2012 | 8:32:48 PM
re: Crunch Time at Avici? I think Avici is kind of sexy
skeptic 12/4/2012 | 8:32:48 PM
re: Crunch Time at Avici?
- This core router "market share" stuff is misleading. As far as I understand, the figures you are using compare giant routers (Avici) with the Juniper M20 as if they are the same product.

Even the Juniper M40 doesn't really qualify (IMO) as a core router anymore.

A more sensible metric for core router share would be OC-48 and OC-192 ports sold to customers.

raskolnikov 12/4/2012 | 8:32:47 PM
re: Crunch Time at Avici? I must agree with your comments... This is another misrepresentation by LR, but its not just with Avici. Maybe LR is angry because Avici had better things to do than participate in their Rotuer test which appeared to be fixed in favor of Juniper, anyway.

Honestly, though, the article had a very biased stance against Avici. Just look at the semantics... Avici claims to have 7 trial customers, Avici claims this... It sounds like the author doubts what Avici was saying, otherwise the author would have said Avici stated, like most reputable journalists would.

Yeah, LR also forgot to mention that Avici, with its current cash and burn-rate has another two years left in it. They downplayed the fact that Avici has 7 trial customers in addition to their major customers and Williams. They downplayed a 78% growth in revenue... And as I recall, they ignore the fact that even the Dell'oro group plans on restructuring their Core router analysis because much of the revenues generated by Juniper come from the edge.

They also fail to recognize that Avici uped guidance at the beginning of 2001, and are confident on meeting expectations for the year, and that the burn rate is really not significantly changed, and revenue topped estimates by 2 million dollars. They are also confident in signing new deployment contracts with Qwest in the near future (as stated in their initial release) as well as with other potential customers. They expect 500 employees by year end... up 150 from last count and more than double since going public.

Are these all signs of a company in distress? They have fared well in the economic slow down, and as we pull out of this slump, they should be poised to build on their foundation.

I will agree, to an extent, that Avici must execute, but that is not different from any other company out there. There is a lot more life left in this company.
skeptic 12/4/2012 | 8:32:47 PM
re: Crunch Time at Avici? We're not "fans" of anyone. It's not our job to be fans. We're journalists, and this is our analysis.

I don't see any misrepresentation of facts in this story. That's a serious accusation to sling around in such cavalier fashion.

Don't you think the market share statistics as you presented them are really misleading?
Avici can't possibly compete with the products being labeled as "core routers" in that survey.

Avici is selling a large and dense product. Comparing them on unit sales to smaller, cheaper and differently positioned products is very unfavorable to them.

raskolnikov 12/4/2012 | 8:32:46 PM
re: Crunch Time at Avici? Please get off of your high-horse. The story can easily be termed a misrepresentation, that is not as grave an accusation as could be made. It was very one sided and failed to tell the whole story, thus it is a misrepresentation. It mentioned only facts that supported it, but ignored the information that would have been contrary to the analysis (despite the fact that no additional research was needed because that info was stated in the conference call, or without an attempt to contact the Company for a rebuttal, even Dateline and 60 Minutes always make an attempt...). This is not an even handed approach. I am not saying other journalists in the past are not guilty of this, on the contrary, it is a daily occurence, but that does not justify it.

There is no way you could honestly say that by glossing over contrarian facts you are not misrepresenting the situation. OK, at the very least, you are not showing the entire picture, which in and of itself is misrepresentation.

(So how many more times can I use misrepresentation in a paragraph?)
Steve Saunders 12/4/2012 | 8:32:45 PM
re: Crunch Time at Avici? "... It sounds like the author doubts what Avici was saying, otherwise the author would have said Avici stated, like most reputable journalists would."

This basically shows that you have no idea what you are talking about. The opposite of what you are saying is in fact the case. If it's not a known fact "claims" is the appropriate word.

PBC 12/4/2012 | 8:32:45 PM
re: Crunch Time at Avici? Holy Shit,

How much bitching can people give for one article?

Ever see that Seinfeld...

"It is hideous ,but yet I cannot look away..."


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