VoIP Systems

Veraz Spirals Downward

Shares of Veraz Networks Inc. (Nasdaq: VRAZ) continued their yearlong freefall today thanks to an analyst downgrade and continued fallout from the news that the company would miss its second quarter revenue targets by about 50 percent. (See Veraz Lowers Guidance.)

Peaking at $8.12 last November, Veraz fell more than 12 percent today to close at exactly $1.00 after Jefferies & Company Inc. analyst George Notter downgraded the company to Underperform and encouraged investors to sell the stock as quickly as possible.

"Given the poor prospects for the company and an expectation for significant cash burn, we're downgrading the shares," writes Notter in a research note today. "We recommend that remaining Veraz investors use the shares as a source of funds for other investments."

Veraz's excuse for its recent earnings miss is similar to the one given by Acme Packet Inc. (Nasdaq: APKT) a couple of weeks ago. It said that while it had achieved satisfactory order bookings in the quarter, those bookings did not convert to revenues in the manner it had expected. (See Acme Packet Gets Jittery.)

Notter writes that the company's days of sales outstanding (DSOs) have increased during the past three quarters: from 94, to 126, to 145. As a result, Veraz is forecasting second-quarter revenues between $15 million and $17 million. Analysts had been expecting $30.8 million.

This has put Veraz in a tough position where it might not have enough cash to run the business sufficiently. "We can't see how the business reaches a scale where they can invest in R&D adequately and, at the same time, generate a reasonable return for shareholders," Notter writes.

Veraz's problems seem to reflect carriers' growing hesitancy to spend significant amounts of money. In its announcement two weeks ago, Acme Packet had warned that its delayed orders were not from a handful of carriers but from almost all of them. Adtran Inc. (Nasdaq: ADTN), which reported strong results yesterday, also warned that it is starting to see a slowdown in carrier spending. (See Adtran Hints at Slowdown.)

"What we're seeing here is carriers are cautious by their nature," says Eric Kainer, an analyst with ThinkEquity LLC who tracks the next generation VOIP equipment space. "While they're well funded, they move in stepwise progression. It's going to take a little while before vendors really get the kinds of deployments we thought were close for the better part of a year."

In the past year, Veraz has also been warned by Nasdaq that it could have its shares de-listed. The Securities and Exchange Commission (SEC) also opened a formal investigation into the company for unspecified matters.

Veraz is due to report its second quarter earnings on Aug. 6.

— Raymond McConville, Reporter, Light Reading

paolo.franzoi 12/5/2012 | 3:36:33 PM
re: Veraz Spirals Downward
I do not have access to the Notter article but DSOs are usually Days Sales Outstanding.

Pete Baldwin 12/5/2012 | 3:36:32 PM
re: Veraz Spirals Downward Yes, you're right. We'll get that changed. Thanks for spotting it.
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