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ADVA Takes a Haircut as It Warns of Tough H2

ADVA's stock took a hammering Thursday following its second-quarter earnings report that highlighted a year-on-year dip in revenues and some less than optimistic forecasts for the remainder of 2017.

The optical, Ethernet and virtualization system vendor reported an 8.3% year-on-year decline in second-quarter revenues to €144.2 million (US$167.8 million), while CEO Brian Protiva noted that the industry was experiencing "exciting and turbulent times." (See ADVA Reports Q2 Revenues of €144.2M.)

Perhaps somewhat more turbulent than exciting for ADVA's investors, though, as the company's share price lost more than 15% of its value, dipping to €7.53 on the Frankfurt exchange.

Of more concern, though, was the outlook for the rest of the year, with the CFO Uli Dopfer noting that "revenues are currently developing in a non-uniform way," that demand from a major web-scale company "is still weak" and that "the revenue outlook for the remainder of the fiscal year is subdued."

Third-quarter revenues are expected to be in the range of €120-130 million ($140-151 million), down from €159.5 million ($185.7 million) in the same period last year, while the operating margin is expected to be in the range 2-5%, compared with 6.4% in the second quarter.

In fact, ADVA Optical Networking believes that "only via a fast and efficient integration of MRV Communications will we be able to stabilize revenues close to last year's level." (See ADVA Swoops for MRV in 'Strategic' $69M Bid and ADVA CEO: How We Can Capitalize on MRV Deal.)

That deal is set to close at some point in August, so there won't be much time to reap any benefits this side of 2018. What there will be, though, are operational cost cuts. "Owing to the weakened revenue development and the expected takeover of MRV Communications, we will be revising our cost structures and cut back on operating costs," noted ADVA's CFO in the company's earnings announcement.

That sort of statement normally has staff wondering how many job cuts there will be and if their own position is in danger, but, above and beyond the planned redundancies that will result from the integration of MRV (in areas of operational overlap), no staff will be axed, according to CEO Protiva.

Responding to questions from Light Reading about what the opex cuts will involve, the CEO stated: "There will be a very tight control of operational expenditures," and "we will not be filling open headcounts … there will be a reduction of discretionary spend wherever possible but there will be no job cuts."

That will set a lot of minds at rest at ADVA, without doubt.

And on a positive note, ADVA is a solid and dependable company that has very clearly flagged up its near-term challenges, which is to its credit -- other companies would have fudged the issues with much broader brush strokes. In addition, it has a stable, experienced and knowledgeable management team that is very well placed to get through to 2018 with a revised and credible business plan in place.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, International Group Editor, Light Reading

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