Avici Soars on Q1 Numbers

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

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googol_byte 12/5/2012 | 3:56:48 AM
re: Avici Soars on Q1 Numbers Talk about an over-reaction by the market. The stock is up 70% today, but more importantly the company's enterprise value is up over 400% - from less than $10M to about $50M. Come on guys, they still only have one customer and haven't made a profit!

Let's face it, this thing is still a dog and the only value it has is the $48M in cash that it still has.
skinbop 12/5/2012 | 3:56:48 AM
re: Avici Soars on Q1 Numbers wow
optiplayer 12/5/2012 | 3:56:47 AM
re: Avici Soars on Q1 Numbers "Let's face it, this thing is still a dog and the only value it has is the $48M in cash that it still has."

Why is that? The company had pro forma operating margin of over 7% so the cash pile is only going to grow given the improved outlook and lower cost structure. Granted, its the ulimate one-trick pony but the business outlook just did a 180 and, to me, the pop in the stock looks warranted.

Your post is typical of so many on these boards that downplay every bit of good news in the industry. Whether its the momentum building at Infinera or the shockingly good results at Avici, someone is always there to rip them. I'm not sure if its jealously or the last remnants of bitterness left over from the collpse of the industy a few years back but many here seem to downplay any good news while relishing in the misery of others (BKHM and LU being two recent examples).
reoptic 12/5/2012 | 3:56:47 AM
re: Avici Soars on Q1 Numbers You know if you are going to only have one major customer... it helps if that customer is huge, and then merges with big competitors and then puts their network traffic over your backbone.

Given how much Juniper made noise yesterday about the importance of the core in routing market, you would think these guys would be attractive takeout...
fiat_lux 12/5/2012 | 3:56:47 AM
re: Avici Soars on Q1 Numbers It's amusing that they would have been able to report a profit had they not had the big layoff last february.

The layoff means they can not possibly deliver the next gen product: but maybe the market doesn't need it. Avici TSR has 40 10G interfaces per rack. CSR-1 has 64, so they are pretty competitive as is.
materialgirl 12/5/2012 | 3:56:46 AM
re: Avici Soars on Q1 Numbers When you count the 10G ports on CSCO and AVCI gear, whose math are you using?
Merovingian 12/5/2012 | 3:56:46 AM
re: Avici Soars on Q1 Numbers
Simple math, CRS-1 has 8 port 10GE LC, at 16 slots per rack 16 x 8 = 128 /rack.
Light-bulb 12/5/2012 | 3:56:46 AM
re: Avici Soars on Q1 Numbers Someone said...
Avici TSR has 40 10G interfaces per rack. CSR-1 has 64...

Actually looking at the data sheets on the CRS-1 they have a density of 128 10G interfaces per rack.

flow_control 12/5/2012 | 3:56:45 AM
re: Avici Soars on Q1 Numbers
CRS-1's 10GE ports are 2x oversubscribed.

^Eagle^ 12/5/2012 | 3:56:44 AM
re: Avici Soars on Q1 Numbers CRS ports are MORE than 2x over subscribed. More like 4x1.

And the backplane cannot handle the traffic if some one tries to use the full "theoretical" thru put. By counting the "goes in" and the "goes out" as each having the total POTENTIAL traffic, you get to double count real THRU PUT capacity.

Well known Cisco trick.

finally CRS has some issues re redundancy.

BOTH Avici and CRS have electrical backplanes that don't scale well to next generation of density or thru put.

To increase capacity of either box is a major redesign.

Neither scales nicely beyond a certain size.

Maybe Juniper is working on some internal homegrown solution that can leap frog over the other methods. I don't know. Wish I did.

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