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Optical/IP

Huawei Partnership Boosts Avici

Big news in Asia helped give Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) a boost today. Its OEM partner Huawei Technologies Co. Ltd. has sold Avici's SSR core router to China Telecommunications Corp. (NYSE: CHA). (See Huawei Wins China Telecom Deal.)

Avici's share price jumped by $1.59, or 12 percent, to $14.76 on the news.

The deal struck by Huawei is for 10 NE5000 routers, the name used by Huawei for Avici's SSR. The routers are being deployed in two "supernodes" of the carrier's national backbone in the Guangdong province.

While Huawei didn't put a value on the deal, analysts at Lehman Brothers believe it will be worth between $3 million and $5 million during the next 12 months, with likely additional opportunities from future expansion.

In a research note issued today, analyst Jiong Shao states that "we consider the joint-win a major breakthrough for Avici... Huawei and Avici may be working on other core router backbone projects in China and we expect more contracts to follow later this year."

As a result, Lehman is confident that Avici will report higher revenues in the second half of 2004, upgrading the firm to equal weighting status (performing in line with the industry). It has put a target price for the stock of $16.

The Chinese deal is significant for a number of reasons. It's the first announced deal to come from the relationship forged last June between the two vendors (see Avici Joins Huawei for China Push); and it makes China Telecom the second major carrier to have Avici routers at its core. The other is AT&T Corp. (NYSE: T), which has been generating revenues for the vendor for three years (see AT&T Makes Avici's Quarter).

The Lehman analysts also believe the deal may be "viewed as incrementally negative on sentiment" for China Telecom's incumbent router supplier Cisco Systems Inc. (Nasdaq: CSCO) and possibly Juniper Networks Inc. (Nasdaq: JNPR) as well, though they don't expect any impact on those companies' revenues.

While China Telecom is the first announced deployment of Avici routers in China, it may not be the first such deal. An Avici spokeswoman notes that Huawei was a 10 percent customer in its fourth quarter of 2003, when it recorded total revenues of $11.5 million (see Avici Narrows Losses in Q4). While Avici says it can't comment on any deals won by Huawei, the Lehman team believes Huawei has previously "deployed three units of Avici's SSR routers in the China leading education network CerNet."

Avici has another major vendor partner in Nortel Networks Corp. (NYSE/Toronto: NT), a relationship that recently bore fruit with a deployment at European research network SURFnet (see SURFnet Picks Nortel, Avici, Telindus and Nortel, Avici Announce Partnership).

— Ray Le Maistre, International Editor, Boardwatch

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optical_1 12/5/2012 | 2:03:06 AM
re: Huawei Partnership Boosts Avici Looks like more to come from Huawei. Avici is going
to eat up more share from ciscos and juniper.
IP Observer 12/5/2012 | 2:03:02 AM
re: Huawei Partnership Boosts Avici Avici is not edge router company at least according to their website and all information out there about company. They are core router only. SURFnet win was for IP core in combination with optical gear from Nortel. Where are you getting that Avici supplies edge routers?
packetdude 12/5/2012 | 2:03:02 AM
re: Huawei Partnership Boosts Avici $3 to $5 million is a quite low estimate for a core and edge market in china that could be in excess of $10 billion when all is said and done and all the provincial networks are modernized.

What they didn't get right was the fact that it appears that the 75% win on the edge portion is in fact Avici's edge routing product and this isn't the first example of an edge win for Avici. Last month Surfnet in the Netherlands chose their edge routing product through the Nortel partnership.

the Huawei component to the revenue probably came from test gear for the china tel bakeoff.

so much for HFR from Cisco. don't shed a tear.

coreghost 12/5/2012 | 2:02:59 AM
re: Huawei Partnership Boosts Avici
Avici doesn't have an edge router. And if they
did have one, that makes the "leadership" at
Nortel even bigger idiots since the big
benefit of signing a deal with Avici was supposed
to be to sell more Nortel edge routers.

But please avici, keep promoting Avici
on the edge. It will help to once and for all
get certain people eliminated inside nortel
before any more damage is done to the company.

I guess its time for Huawei to stop pretending
about how competitive their routers are with
cisco. For them to push Avici into a deal that
was Huawei's for the asking suggests that the
Huawei products are not suitable for much
beyond enterprise applications.
cpad2000 12/5/2012 | 2:02:47 AM
re: Huawei Partnership Boosts Avici I think the issues that recent posts are trying to deal with are (edge versus core) are stuck on nomenclature. CPE routers are certainly not what AVICI would provide, they don't play at the edge as is commonly thought.

Think of access instead of edge routers and then think of core routers to better understand where these systems will be going. The SSR would be deployed at the metro point of presence (in this case city state) and the TSR at the core.

That's why I believe a fully configured TSR might sell at the core for $3 million and a SSR for say 800,000. Take AT&T for example: they might deploy 60 TSR's to cover every major pop, but likely 700 SSR's to cover every metro. The lower the part of the network, the lower the cost. That is the network hierarchy.

Lehman got the story but missed the significance which is to be expected. Its either a big deal or its not. But by their math a deal with China telecom is worth the difference in their new price target, moving from $14 to $16, which is 35 million. That is simply nonsense.

They got the story but they are not reporters, their job is to analyze and on that they failed. Its much more significant.
packetdude 12/5/2012 | 2:02:37 AM
re: Huawei Partnership Boosts Avici when i posted "avici on the edge avici on the core" it was referring to the access routers. avici is not going to go putting CPE boxes anywhere.

edge/access is getting blurred, what is certain is that avici's win in china and the netherlands points to increasing confidence of their partners Nortel and Huawei in Avici's capabilities.

And let's put any prejudices aside regarding their partners. Whether you are for or against Nortel or Huawei, the fact is that they are delivering for Avici. The warrant granted to Nortel for 800,000 shares of Avici's stock is dependent on Nortel executing revenue wins for Avici, not the other way around.

Talk is cheap, money speaks.

signmeup 12/5/2012 | 2:02:36 AM
re: Huawei Partnership Boosts Avici packetdude

you should change your name to avicidude. seriously.

While NT has been pushing AVCI, don't think for a moment they wouldn't drop them if a large deal presented itself that required a 'different' (read: better) core router vendor.

Huawei is currently developing a core router to compete with the AVCI TSR/JNPR T/CSCO H. This should be no suprise to anyone. As soon as it is finished (probably looking exactly like a TSR), say bye-bye to that relationship.

So you keep saying 'Talk is cheap, money speaks', but I fail to see all of this 'money' rolling in for AVCI. What about last quarter? or the quarter before that?

perhaps AVCI would do better if you went back to work instead of troll on LR - but then again, maybe not.
IP Observer 12/5/2012 | 2:02:35 AM
re: Huawei Partnership Boosts Avici Signmeup,
Who do you think is out there that warrants a look in core router market beyond Cisco, Juniper, Avici? Have not seen anything from Procket,Caspian (are they still core?),HyperChip, Chiaro,etc...that would make anyone look at them seriously. None of these guys are likely to be deployed by any serious carrier in real network.
Even if you are not a fan of Avici's for whatever reason, they have broken through into very large networks and they would not be in AT&T, China Telecom, SURFnet if they did not have something over Cisco or Juniper.
Time will tell if they can continue to take customers away from 2 strong incumbents. What is clear is that without Nortel and Huawei they would have a difficult time. Further, core market or even edge market cannot support more than 3 serious players. Core players are Cisco, Juniper, Avici. Edge players are Cisco, Juniper, maybe Alcatel.
TheVoice 12/5/2012 | 2:02:34 AM
re: Huawei Partnership Boosts Avici "Core players are Cisco, Juniper, Avici" might be true in your world [USA] but future belongs to China, count on Huawei and ZTE to rule it.
Just my 2 cents.
coreghost 12/5/2012 | 2:02:32 AM
re: Huawei Partnership Boosts Avici
Lets put the self-deception aside. The ATT
deal for Avici was years ago now. Its mature
and winding down.

Surfnet and China Telecom were given to Avici.
They didn't compete for them and didn't win
them. But they do serve Avici in that they
no longer have to lie about two other customers
in north america that are not really customers.

In the case of Nortel, it wasn't technology
that led nortel to partner, it was the fact
that they didn't have to put any real money in.

I dont think Avici has won a competitive
technical evaluation since around 2000 at
any potential customer.

As far as Huawei goes, Avici is swimming with
a shark. A stupid shark to be sure, but a shark
all the same.

And what exactly does avici have over cisco
and juniper? They have an aging system, a
rotten support staff and an unbelievable track
record of not living up to promises starting
with the unreliable reliablity of the Avici
router.

So lets stop pretending that Avici is taken
seriously as a competitor to Cisco and Juniper.
They had their chance years ago and they blew
it. And for all the smoke they blow these days,
nobody outside of a few very naive people at
nortel believe in them. And one of those people
is sitting at home these days.
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