ECI Reports Burnin' Earnings

ECI Telecom Ltd. (Nasdaq/NM: ECIL) on Thursday announced that its third-quarter 2004 revenues jumped 35 percent thanks to strong sales of broadband access and optical networking equipment.

The company's revenues grew to $128 million, a 5.8 percent increase from last quarter, marking ECI's fifth consecutive quarter of increased revenues for the company.

Net profits for the Israel-based vendor for the quarter reached $6 million, or 5 cents a diluted share, compared to a net loss of $14.7 million during the year-ago quarter and a $3.5 million loss last quarter.

While ECI reported strong revenue increases in its Broadband Access and Optical Networks divisions (35 percent and 46 percent gains, respectively), buried in its otherwise positive release was the news that sales to VOIP provider Veraz Networks Inc., in which ECI holds a 43 percent stake, took a precipitous drop in the quarter. Sales to Veraz fell to $4.5 million for the quarter, a $3.8 million drop from the $8.3 million in sales for the second quarter.

“The drop is primarily to the deferral of one large DCME [digital circuit multiplication equipment] order from the third to fourth quarter,” says Giora Bitan, executive VP and CFO of ECI. Bitan didn’t seem overly concerned that the lower sales to Veraz could indicate a problem, saying that the deferred order would be included in the fourth-quarter numbers, bringing the sales up for that quarter and beyond.

For the first nine months of 2004, ECI’s revenues jumped to $357 million, a 23 percent increase from $290 million in the first nine months of 2003. Operating income moved into the positive, hitting $7.4 million, compared to an operating loss of $29.9 million for the same period in 2003. Total net income was $1.2 million, or a penny a share, compared to a net loss of $57.5 million, or 53 cents a share, for the first nine months of last year.

Indeed, being in broadband access business has helped ECI produce smiles all around. “The Broadband Access Division continues to demonstrate significant growth and has now been profitable for 11 consecutive quarters," says Doron Inbar, ECI's president and CEO.

Inbar says the company's two largest customers, France Telecom SA (NYSE: FTE) and Deutsche Telekom AG (NYSE: DT), keep chipping in, and the company's fiber to the premises field trial with BT Group plc (NYSE: BTY; London: BTA) has just gone live.

Another highlight: Sales of ECI's multiservice provisioning platform (MSPP) have helped drive the Optical Networks division back to profitability. About 40 percent of that division’s sales are currently to cellular operators, who need optical gear to do backhaul from their network base stations.

The optical networking side of ECI had sustained losses for three years, but now Inbar says the company is "seeing solid growth trends in both its top and bottom line into 2005.”

— Chris Somerville, Senior Editor, Next Generation Services

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