Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) surprised everyone today -- including itself -- by announcing record quarterly revenues of $21.4 million and raising its annual revenue guidance by 50 percent. (See Avici Reports Q1.)

The news sent the firm's share price soaring 80 percent, up $3.45 to $7.80, in early morning trading.

Business from its main customer, AT&T Inc. (NYSE: T), accounted for more than 75 percent of the quarter's revenues, with Avici confident the carrier will stick with its core IP routers for its backbone capacity upgrades and expansion.

"AT&T has hit the ground running following the merger with SBC, and we've seen some project acceleration," stated Avici's CEO Bill Leighton in the vendor's conference call this morning. "I remain confident that the AT&T merger will provide a big upside for Avici," and, he added, that the proposed merger with BellSouth Corp. (NYSE: BLS) will also be positive. (See Ma Bell Is Back!)

As a result, CEO Bill Leighton said annual revenues for 2006, which had been forecast to be about flat with 2005's $37.2 million, are now expected to be 50 percent higher than last year -- which would mean nearly $56 million.

And by the end of the year the company's cost base will be lower, as the effects of its restructuring program kick in. Avici ended March with 187 on staff, a 40 percent reduction from the end of 2005. (See Avici Downsizes to Survive.)

Avici's other revenue-generating customers in the first quarter were SURFnet , which accounted for about 17 percent of revenues, and IP-Only Telecommunication AB . (See SURFnet Picks Nortel, Avici, Telindus and Avici Wins in Sweden.)

Both those small European customers came to Avici via partner Nortel Networks Ltd. , but Leighton said no further business was expected from that channel. New revenues should come from Türk Telekomunikasyon A.S. , an engagement brokered by Alcatel (NYSE: ALA; Paris: CGEP:PA), though no revenues have come from that deal yet. (See Turk Selects Avici .)

Despite the record revenues, Avici still recorded a net loss of $5.3 million, or 41 cents per share, though that was primarily due to $6.7 million in special charges, mostly related to the restructuring process. Without those charges, Avici would have recorded a net profit of $2 million, or 15 cents per share.

The firm's gross margins for the quarter were 64.9 percent, reflecting a high proportion of direct sales and a favorable mix of linecard sales versus chassis sales, which deliver lower margins. It has $48.3 million in cash and cash equivalents and no debt.

The company is doing its utmost to keep AT&T happy, and is developing an OC768 linecard, with 40-Gbit/s throughput, for the carrier. Availability is promised for the middle of this year.

Leighton declined to provide any details on the company's future plans. Avici announced in February it has employed two banks to map out potential strategies, including a trade sale, a merger, or further restructuring. (See Avici Plans Changes.)

— Ray Le Maistre, International News Editor, Light Reading