Optical/IP Networks

Stratos Breaks Even

Although the numbers were not exactly glowing, Stratos Lightwave LLC (Nasdaq: STLW) on Wednesday reported fourth quarter and year-end financial results in line with lowered expectations and offered a ray of hope for the new fiscal year.

For the quarter ending April 30, Stratos earned $307,000, or roughly break-even per share, prior to taking a $3.1 million charge as a reserve for excess and obsolete inventory. That’s down from $1.1 million earnings, or 2 cents a share, a year ago. The consensus of analysts expected break-even. Revenues for the quarter were $30 million, up 28 percent from last year’s $23 million. Stratos issued guidance in April, forecasting sales in the $25 million to $30 million range.

For fiscal year 2001, Stratos earned $11 million, or 18 cents a share, compared with $3.8 million or 7 cents a share in 2000. Revenues were $132 million, up 80 percent from $73 million in 2000.

As recently as Feb. 28, the company projected more optimistic revenue growth of 85 to 100 percent for the year. But the results are consistent with April's toned-down guidance of 75 to 80 percent growth.

The maker of optical subsystems is faring reasonably well, considering the recent trauma and burgeoning inventories of key customers such as Nortel Networks Corp. (NYSE/Toronto: NT), Cisco Systems Inc. (Nasdaq: CSCO), and Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA). Company officials in a conference call with analysts predicted a modest rebound in 2002, saying top- and bottom-line financials will show double-digit growth in the 2002 fiscal year.

Stratos now is predicting a 20 percent increase in sales for 2002, which would bring them to about $158 million, although they expect first-quarter sales to be roughly the same as sales for the quarter just ended. Officials expect the net profit margin for 2002 to improve slightly, 8 to 10 percent. A 9 percent margin would deliver $14 million in net earnings, or 22 cents a share. Long term, the company expects to grow 50 to 100 percent a year.

Company officials said Stratos had significant fourth-quarter slowdowns in the gigabit Ethernet and Fibre Channel markets. But they see bright spots going forward for the Fibre Channel and metro market subsystems. The company does not expect to lay off any more employees, and officials note they may resume hiring this year.

- Tom Davey, special to Light Reading

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