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Routing

Avici Rocks 42% on Shock Profit

Core router vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) shocked investors -- and maybe everybody else -- by posting a near $8 million profit for its second quarter, sending its stock shooting up 40 percent in early trading.

While analysts were expecting another slim quarter of revenues less than $11 million and a loss of 17 cents per share, Avici stormed home with revenues of $25.3 million and a net income of $7.9 million, or 58 cents per share. That's its highest quarterly revenue ever and the first time it has generated net income under GAAP rules.

Avici's shares rose $2.35 (42.50%) to 7.88 in early trading today.

"Due to a surge and acceleration in demand this quarter's revenue and bottom line results have far exceeded our expectations and resulted in the company turning cash flow positive," noted CEO Bill Leighton in the company's press release.

That bottom line was helped by a gross margin of 72.8 percent, helped by a high proportion of direct sales and a "favorable" product mix.

That's two quarters in a row Avici has pulled surprising figures out of the hat. Its first-quarter results also far exceeded expectations, sending the stock up more than 80 percent on April 20. That period's revenues were driven by strong demand from its main customer, AT&T Inc. (NYSE: T), which accounted for more than 75 percent of the first quarter's $21.4 million revenues. (See Avici Soars on Q1 Numbers.)

Leighton, at that time, raised the company's annual revenue guidance to around $56 million. Now, though, the vendor has achieved revenues of $46.7 million in the first six months, so, on today's conference call, the CEO said he expects 2006 revenues to be between $75 million and $85 million.

AT&T was again the major revenue driver in the second quarter, though Avici didn't reveal the level. The other notable customer was Limelight Networks Inc. (Nasdaq: LLNW), but it didn't generate more than 10 percent of revenues. (See Avici Storms Supercomm.)

Leighton couldn't help boasting about the AT&T deployment -- and taking a swipe at Cisco Systems Inc. (Nasdaq: CSCO) at the same time. "We are the first and only company with a terabit router to be deployed in a commercial network," he claimed.

But, as ever, Avici is being cautious, as it relies so heavily on a single customer. In the company's quarterly statement, Leighton noted: "We expect to continue to see strong revenue and bottom line results in 2006, but caution that the business conditions driving this increased demand can change significantly."

He added on the company's conference call: "We stress caution, as the business situation can change very quickly." But there's enough demand from AT&T for Avici to believe it can deliver a profitable second half of the year.

And the company is ready for when the current demand falls away. The vendor has restructured so that it can break even with annual revenues of between $40 million and $50 million. (See Avici Plans Changes.)

It has also been evaluating its long-term future, and while Leighton didn't want to go into any detail, he said Avici had "talked with several interested parties and held numerous discussions" on the subject. (See Avici Downsizes to Survive.)

Avici currently has $52.6 million in cash and no debt.

— Ray Le Maistre, International News Editor, Light Reading

fiberous 12/5/2012 | 3:47:49 AM
re: Avici Rocks 42% on Shock Profit Surya moves out from Avici to Cisco, Bill moves
into Avici from AT&T.
Bill gets a deal from AT&T for Avici.
Avici makes more money.
Surya at Cisco____________________ (please fill in the blanks)
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