Sunrise Reports Q1

Sunrise Telecom reports $19.9M sales for Q1, up 21% compared to $16.4M in 1Q06; preliminary GAAP loss from operations of $4.6M

May 3, 2007

7 Min Read

SAN JOSE, Calif. -- Sunrise Telecom® Incorporated (OTC: SRTI.PK - News), a leading provider of service verification equipment for telecommunications, cable broadband and Internet networks, today reported sales of $19.9 million for the first quarter of 2007, up 21% compared to $16.4 million in the first quarter of 2006 and down 46% sequentially from $36.6 million in the fourth quarter of 2006. Sunrise Telecom's first quarter is often characterized by seasonally lower sales reflecting the typical budget cycle of major North American carriers.

Preliminary diluted GAAP net loss per share was $(0.09). First quarter earnings were impacted by a combination of softer than expected topline and several one-time charges, including a bad debt write off and an inventory write off. Despite the seasonally weak sales performance, order flow remains strong resulting in a backlog at quarter-end was $15.6 million, compared with $14.6 million at the end of the first quarter of 2006 and $7.7 million at the end of the fourth quarter of 2006. All financial information other than revenue and backlog that is presented in this release should be considered preliminary, as Sunrise Telecom has not yet completed the restatements of its historical financial results, and those restatements may affect reported results. Further, this financial information has not been subjected to completed audit or review procedures by our independent auditor.

"Our ability to generate solid first quarter 2007 revenue growth over the same period in 2006 serves as a testament to the breadth of Sunrise Telecom's business," said Sunrise Telecom President and CEO, Paul Marshall. "These results were achieved despite a delay in shipments of our video-over-fiber CM750 test tool to one of our largest customers, a major North American telephone service provider, and a later than expected budget release by another such provider. At quarter end we had approximately $7 million of our triple play service verification handheld, the CM750, in backlog and expect to ship a substantial portion of this backlog during the second quarter as we ramp production."

"We are especially encouraged by Sunrise Telecom's success in penetrating the triple-play testing market in Europe. During the first quarter, we secured two important wins with leading telcos in Western Europe. Both situations were highly competitive, and the win validated our ability to take triple-play market share outside of North America," concluded Paul Marshall.

Wireline

Wireline product sales were $5.9 million, down 5% year-over-year and 56% sequentially. Said Sunrise Telecom CFO, Rick Kent, "A major North American service provider released its budget later than usual this year. This impacted sales of our Home Test Toolkit® (HTT) for this customer's FTTx deployments, as well as other products the customer typically orders in the normal course of business. We expect that HTT orders from this carrier will resume in the second half of 2007, however, the exact timeline for their FTTx rollout remains uncertain."

Wireline sales were driven primarily by the SunSet® MTT platform and DSL and E1/T1 modules on the SunSet MTT platform, reflecting the continuing popularity of these handheld products with carriers and field technicians worldwide. Sales of DSL modules in the first quarter of 2007 included follow-on shipments to a leading carrier in France that standardized on a configuration of the SunSet® MTT in 2006 and is equipping it's technicians with Sunrise Telecom's DSL test tools. Sunrise Telecom also continued shipping its DSL product to a leading telecom equipment manufacturer that incorporates the product into a remote network testing solution and resells to carriers worldwide.

During the quarter the wireline group introduced the Voice and Video Test Suite for the SunSet® MTT platform, which delivers integrated VoIP and IPTV testing in a single, compact unit. The suite of modules and software networks, allows service technicians to validate IPTV and VoIP service over DSL using a single, compact unit. Sunrise Telecom has already received its first order for the Voice and Video Test Suite from a major European carrier, which will use it to support the deployment of multimedia services.

Broadband Cable

Broadband sales were $5.8 million -- essentially flat year-over-year and down 46% sequentially. Sales were impacted by shipment delays of CM750s to a large North American telephone service provider that uses this product to test video-over-fiber installation and services. Despite the flat sales, orders were quite strong, generating a large backlog at quarter end.

Said Rick Kent, "In the first quarter, we implemented a hardware upgrade in our CM product family resulting in slower than expected production and quality assurance process. We are clearing these issues now and expect the current limited production rate to ramp up during the quarter as normal process improvements occur. Our shipments to the aforementioned provider account for approximately $7.0 million of our quarter-end backlog. We expect our product improvements, combined with the high demand driven by the triple play subscriber service ramp, to create strong demand for the CM750 this year."

The sales of central office equipment, including the video spectrum analyzer AT2500, remained strong reflecting follow-on orders from existing customers in North America.

Fiber Optics

Fiber optics revenues were $6.9 million during the first quarter of 2007, up 81% year-over-year and down 9% sequentially. The Scalable Test Toolkit® (STT) for core and metro networks remained one of the most popular product families in the optics group. In the first quarter Sunrise Telecom further enhanced this platform by introducing the STT Metro module, a complete test set designed to test the Ethernet backbone of triple play services. "We are very excited about the STT Metro," said Paul Marshall. "This new module allows carriers to measure quality of data, voice and video streams simultaneously, setting it apart from other offerings in this area."

Shortly after introducing the STT Metro, Sunrise Telecom secured two major standardization wins on its STT platform. The leading British carrier will use STT Metro and STT ONE in the deployment of its next generation network, designed to deliver converged voice, data, video and mobile services over IP. Sunrise Telecom also secured a win with a large South African service provider. Sunrise Telecom expects that the order flow under recent standardizations will start in the second quarter and ramp up throughout the year.

Sales of the handheld tool for testing 10-Gigabit SDH/SONET showed strong annual growth driven by worldwide bandwidth expansion to support new networking applications. During the quarter Sunrise Telecom received and shipped a large order of its SunSet® 10G handhelds to a major Australian carrier to support a network upgrade, including deployment of regional and metropolitan Ethernet networks.

Protocol

Protocol products generated first quarter 2007 revenues of $1.3 million compared to $0.6 million in the first quarter of 2006 and $4.7 million in the fourth quarter of 2006. Major contributors to first quarter sales were the wireless protocol analyzer, the 3GMaster® and VoIP protocol analyzer, NeTracker®.

First Quarter Financial Highlights

In the first quarter of 2007, Sunrise Telecom reported preliminary gross margin of 67%, up from 66% in the fourth quarter of 2006 and 63% in the first quarter a year ago. Preliminary first quarter 2007 loss from operations was $4.6 million, reflecting the impact of the following charges:

  • $1.1 million in legal costs related to a lawsuit against VeEx filed by Sunrise Telecom in January of 2007, and a shareholder derivative lawsuit filed against the Company's current and former officers and directors in December of 2006;

  • $0.5 million bad debt write-off related to the termination of a distributor; and

  • $0.5 million inventory write-off related to a repositioned broadband product in development.



Sunrise Telecom expects that while its legal expenses will come down from the levels observed in the first quarter of 2007, they will continue to be material until both litigation issues are resolved.

Outlook

"This year Sunrise Telecom will continue to benefit from large-scale triple play deployments, both in North America and internationally," said Paul Marshall. "The growing flow of orders from North American network service providers will be complemented by our recent triple play wins in Europe and Asia. Our customer relationships are strong due to our proven performance and the confidence that our customers place in our strategic direction. We currently expect second quarter 2007 sales to be in the $23 to $28 million range."

Sunrise Telecom Inc. (Nasdaq: SRTI)

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