Optical/IP Networks

Orckit Soars on Corrigent Sales

While its marquee customer rolls out triple-play services and performs network upgrades, equipment maker Corrigent Systems Inc. is helping its parent company's stock go crazy.

This morning, Orckit announced it had earned $3.1 million profit (20 cents a diluted share) on revenues of $20.6 million for the quarter ended March 31. For the same period in 2004, Orckit lost $5.4 million, or 41 cents a share, on revenues of $320,000.

Shares of Orckit, the holding company that owns most of Corrigent, shot up $2.17 (10.10%) to $23.65 in late afternoon trading Wednesday after the company reported a $3.1 million profit and bumped up its revenue forecasts for 2005.

Corrigent's having its biggest success with KDDI Corp. in Japan, which is replacing its 2.5-Gbit/s transport network with Corrigent systems so the network can run at 10 Gbit/s (see Corrigent Lands KDDI). Sales of Corrigent gear to KDDI were responsible for 85 percent Orckit's sales in 2004, according to SEC filings.

Corrigent is trying to take advantage of a migration for older legacy Sonet networks to multiservice products that can handle many data formats. Its product, the CM-100, delivers Ethernet and TDM/Sonet–based services over a packet-based network. The device makes use of MPLS tunnels over an RPR ring so carriers can transport their legacy data services (frame relay, ATM, etc.).

The upshot of Corrigent's architecture is that it allows a carrier to run a general-purpose optical transport network that supports video, data, or any other advanced service (see Optical IP Revisited).

"It makes more sense to migrate to a packet-optimized transport network that can also support Sonet services," says Gady Rosenfeld, Corrigent's VP of marketing. Corrigent is currently presenting at Light Reading's Future of Optical roadshow (see Optical Networking: All Grown Up)

That drastic improvement had a lot to do with sales to KDDI, but also had something to do with Orckit's year-long shift from being a DSL equipment vendor to a holding company for Corrigent.

In its SEC filings, Orckit admits its business is a one-note symphony these days. "We expect that substantially all of our revenues in 2005 will be comprised of sales of Corrigent CM-100 products to KDDI," its filings state.

Even though Corrigent's revenue sources aren't exactly diverse, the point the company is proving inside KDDI cannot be understated. The Heavy Reading report "Pseudowires and the Future of Transport and Access Networks" opines on KDDI's ability to run all services over a single transport network:

The value to an operator such as KDDI is clear: It is backhauling a broad mix of data and TDM traffic through its metros, and the ability to statistically multiplex traffic across an entire ring, support multiple classes of service with fairness, and support Layer 2-based 50ms protection around the ring are compelling value-adds beyond what traditional vendors can offer.

KDDI's network uses virtual private LAN service to carry its end users' traffic to its metro nodes for handoff to the appropriate video, Internet, or PSTN network. It's metro rings also haul 3G wireless traffic from base stations and Ethernet services from office buildings to the metro nodes.

Is Corrigent ready to name another customer? Rosenfeld says there are some packet-based ADM requests for proposals (RFPs) out there, but there is also an abundance of carrier interest in having Sonet-based platforms with RPR capabilities. Given that market reality, Corrigent's top competitors include Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), ECI Telecom Ltd. (Nasdaq/NM: ECIL), Fujitsu Network Communications Inc. (FNC), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Ltd. (NYSE/Toronto: NT), Siemens AG (NYSE: SI; Frankfurt: SIE), and UTStarcom Inc. (Nasdaq: UTSI).

But even with just one major customer, Corrigent is still giving Orckit quite a boost. Orckit says it expects to turn a $3.3 million profit on revenues of approximately $21 million next quarter. The company also says it expects to turn a $15 million profit on about $90 million in revenues for the entire year of 2005.

— Phil Harvey, News Editor, Light Reading

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