ECI: Nortel Didn't Deliver
His comments come a day after Nortel announced a broadband joint venture with one of ECI's chief DSLAM competitors, Huawei Technologies Co. Ltd. . (See Nortel & Huawei: Broadband Buddies.)
Speaking during the company's fourth quarter conference call, Maor said the "principal reason for cooperating with Nortel was to penetrate the North American market. That goal was not achieved," and the resulting few orders are "insignificant to our business," adding that the small contracts won in Spain and Denmark with Nortel would be supported. (See Nortel Wins Contracts, Partners and ECI Gets Euro FTTH Deal.)
"We are talking to other companies with a strong presence in North America, including the RBOCs, and we hope to be announcing something this year. Growing our business in North America is a high priority."
But the vendor's CFO Giora Bitan was keen to point out that, while North America is a massive market, ECI's managed to be a success despite Nortel's failure to deliver. "ECI's focus has been on high growth markets, such as Europe, Asia/Pacific, and the former Soviet countries. Business in Russia, India, China, the Ukraine, and the Philippines has helped us achieve 27 percent growth in 2005 [to revenues of $630 million]. Those companies focused on North America couldn't have achieved that level of growth. But the U.S. is a large market, and we intend to play there," said the CFO.
ECI's fourth quarter financials were just a little bit better than analysts' expectations -- net income of $7.6 million from revenues of $169 million -- but with the company having to seek a new partner for the U.S., and with the former Laurel Networks division still losing money and dragging on the business, the company's share price dipped 26 cents, more than 3 percent, to $8.11 in early trading. (See ECI to Buy Laurel for $88M.)
Here's what the ECI management had to say about Laurel, its major broadband customers, and an as yet unlaunched DSLAM product.
The Laurel Effect
The Data Networking Division, as the former Laurel is now known, generated just $2 million in revenues and an operating loss of $8.7 million in the fourth quarter. The ECI management is still bullish about the long-term impact, saying that sales are set to grow significantly in the second half of this year, with "emerging markets" offering the best prospects, though admitted that any financial fruits might take longer to ripen than they first thought.
Maor explained that ECI "didn't buy Laurel for revenues and market share, we bought it for its technology and R&D team. The next generation Laurel platform will be the basis for all our product lines from 2007 onwards, and will help us accelerate our time to market. But it will be 2007 before the acquisition is accretive to earnings and that's a bit later than we first imagined."
Broadband Access Sales
ECI sold more than 4 million lines in 2005, with about 60 percent going to its two main customers, Deutsche Telekom AG (NYSE: DT) and Orange (NYSE: FTE). The other major DSL customer during the year was Taiwanese incumbent Chunghwa Telecom Co. Ltd. (NYSE: CHT), but that engagement is on the decline. Maor, though, mentioned ECI recent signing of another Tier 1 carrier customer in Europe, though that deal is not yet "substantial in terms of revenues."
France Telecom, though, continues to be a major contract, especially for the ADSL2+ ports it needs for its IPTV customers. The CEO said ECI's ADSL2+ equipment is now installed at 2,900 of the French incumbent's exchanges. Demand from FT is expected to grow steadily through 2006, while shipments to Deutsche Telekom will grow as the year goes on, as ECI is providing VDSL2 capabilities for the German incumbent's next generation access push. (See DT, TI Set to Spend Big on Broadband and DT Flings Billions at Fiber Access.)
Maor added that the company will launch a low-cost DSLAM specifically for emerging markets in the Asia/Pacific and East European regions.
— Ray Le Maistre, International News Editor, Light Reading