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Optical/IP

Deltathree Grows, Takes Blows

VOIP services might be a hot market, but it's a tough business all the same. Just ask VOIP service provider deltathree Inc. (Nasdaq: DDDC), which today posted its best-ever gross margin figure (38 percent); announced its revenues had jumped by 47 percent; and said it had cut losses by more than half to just $409,000 (see Deltathree Reports Q2).

After that stream of positive news, the company's stock sank 42 cents, more than 12 percent, to $3.02.

Why? Wall Street felt that the company, which provides services and VOIP products direct to consumers and also via resellers, should have done better.

Deltathree's second-quarter revenues were $6.9 million, a figure at the low end of its previous guidance and below analysts' expectations of $7.16 million. The company's net loss of a penny per share was, however, in line with expectations.

But deltathree's guidance for the third quarter is for a revenue increase of between 3 percent and 5 percent, which, at the most, would take revenues to $7.25 million. Analysts, on average, had been anticipating revenues at nearly $8.2 million for the quarter.

If the questions posed by analysts on the service provider's conference call today are any guide, they were hoping for a greater contribution from deltathree's two RBOC customers, Verizon Communications Inc. (NYSE: VZ) and SBC Communications Inc. (NYSE: SBC), which both resell its VOIP services.

But the firm's management declined to comment on the level of business deltathree does with any particular customer, with CEO Shimmy Zimels saying only that the "deployment with Verizon is gaining traction," and that the SBC deal has so far resulted in limited subscriber numbers.

Deltathree isn't the only VOIP wholesale and retail provider that has failed to meet market expectations recently. Despite strong growth and a successful debt reduction program, iBasis Inc. (OTC: IBAS) recently took a hit on its valuation when it reported its latest financials (see China Takes Shine Off iBasis).

— Ray Le Maistre, International News Editor, Light Reading

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