Optical/IP Networks

'Good Grief!' Sonus Disappoints Again

Despite reportedly strong business, Sonus Networks Inc. (Nasdaq: SONS) announced yesterday that it will again disappoint with its quarterly earnings and will again report later than usual.

So continues Sonus's streak of confounding analysts not just with bad news, but bad news twisted with maddeningly quirky circumstances. In this case, business is reportedly booming, but the particulars of getting orders converted into revenues are keeping Sonus stuck in the mud.

Meanwhile, Sonus's stock continues a southward slide. Shares of the company fell $0.07 (1.88%) to $3.66 in normal trading on Monday. But after the news sank in, Sonus fell down 67 cents (18.3%) to $2.99 in after-hours trading.

For its first quarter, which ended March 31, Sonus now expects to report revenues of $30 million to $34 million, well short of the $41 million expected by analysts polled by Reuters Research. The figure also trails the $45 million reported by Sonus for its December quarter (see Sonus to Miss Q1 Targets, File Late and Sonus Promises, Promises).

"The revenue shortfall is due to schedule delays for the conversion of certain shipments to revenue and the late renewals of several annual maintenance contracts," CEO Hassan Ahmed said in a prepared statement.

As if to scuttle any speculation about the company's financial health, Sonus officials also pointed out the company has $311 million in cash reserves.

On a conference call with analysts, Sonus officials said business remains busy, with incoming orders totaling almost twice the amount of revenues. But it's taking longer to convert customer orders into revenues.

In one case, for example, a customer extended Sonus's required interoperability testing into the second quarter. Such delays are a byproduct of the enormous projects Sonus is involved in, officials said.

"The orders that are coming in are increasingly larger. They are increasingly more complex, they are more global, and therefore the revenue convergence is longer," said CFO Ellen Richstone.

A more irksome case involves one customer that's received Sonus equipment, installed the equipment, and paid Sonus for the equipment -- and yet isn't included in first-quarter revenues. The problem is that Sonus is negotiating a contract with this customer for a network expansion, and the rules of accounting require Sonus to delay other revenues from this customer -- even those unrelated to the expansion -- until the negotiations are done.

On the conference call, chairman and CEO Hassan Ahmed gave few details about this case, other than saying, "it's a domestic customer and one that we have a very good relationship with."

As if stuck in some Charlie Brown vortex of misery, Sonus continues to find ways to dampen and delay its earnings reports. Last quarter's antics included a delay in reported earnings because Sonus was still catching up with new requirements under the Sarbanes-Oxley law. That announcement prompted one analyst to ask aloud when Sonus would become a "normal" company (see Sonus Misses the Mark).

With the bad news outweighing the good in investors' eyes, Sonus's stock is toying with its 52-week low of $2.94.

Separately, and nearly the opposite of Sonus's news, ADC Telecommunications Inc. (Nasdaq: ADCT) last night said its revenues will be better than expected.

ADC will also undergo a 1-for-7 reverse split, the kind of move often taken to keep a stock out of delisting danger. In after-hours trading yesterday, ADC's stock was up 32 cents (17%) at $2.20.

— Craig Matsumoto, Senior Editor, Light Reading

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