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Orckit Estimates Soar, But Shares Fall

Once again, Orckit Communications Ltd. (Nasdaq: ORCT) demonstrates the difference one good customer can make to a smaller company.

Orckit, the parent company of Corrigent Systems Inc. (which supplies virtually all the parent company's revenue), has once again boosted its revenue forecast for 2005. And, though it lowered its revenue projection for next quarter, the company is on track to increase its annual revenues by 700 percent (see Orckit Boosts '05 Revenues).

The company now says it expects revenues of about $95 million, and net income of approximately $17 million, or $1.00 per diluted share, for the year 2005. Earlier, Orckit said it was expecting to turn a $15 million profit on about $90 million in revenues for 2005. Last year, Orckit reported revenues of $11.3 million.

For Orckit, the good news is that KDDI Corp. in Japan is a good customer. The bad news is that KDDI is the only significant customer.

Despite Orckit's overall momentum, the fact that the company's third-quarter expectations were out of sync with analysts' expectations sent its shares downward. Orckit shares fell $3.14 (11.11%) to $25.13 in late afternoon trading. Still, it's been a remarkable comeback run for a company whose shares once traded hands for $5.

Orckit today reported a second-quarter profit of $3.9 million, or 21 cents a share, on revenues of $21.8 million. That compares with the $5.9 million net loss, or 45 cents a share, on revenues of $350,000 the company reported during the year-ago quarter.

Its results also compare favorably to the company's previous guidance, which was that it would hit a $3.3 million profit on revenues of approximately $21 million for the second quarter (see Orckit Soars on Corrigent Sales ).

For the company's third quarter, which ends Sept. 30, Orckit says it will report a profit of about $4.2 million, or 23 cents a share, on revenues of about $24 million. The two analysts covering the company were expecting Orckit to report a profit of 25 cents a share on revenues of $23.3 million, according to Thomson Financial.

The company's increased optimism in its annual revenues comes because its big customer, KDDI, continues to add orders as it replaces its 2.5-Gbit/s transport network with products from Corrigent, Orckit's primary business, so the KDDI network can run at 10 Gbit/s (see Corrigent Lands KDDI).

What's KDDI doing with Corrigent? The carrier finds Corrigent's gear useful for migrating its slower legacy network to a multiservice network that can support more data formats. Corrigent's CM-100 delivers Ethernet and TDM/Sonet–based services over a packet-based network by making use of MPLS tunnels over an RPR ring to allow carriers to transport their legacy data services (Frame Relay, ATM, etc.).

The company faces healthy competition in the market worldwide as there are several vendors -- including Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), ECI Telecom Ltd. (Nasdaq/NM: ECIL), Fujitsu Network Communications Inc. (FNC), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Ltd. (NYSE/Toronto: NT), Siemens AG (NYSE: SI; Frankfurt: SIE), and UTStarcom Inc. (Nasdaq: UTSI) -- that are in the business of upgrading Sonet transport networks to multiservice data networks.

For the short term, though, Corrigent's gravy train doesn't look like it's going to run out of steam. The company just announced that KDDI selected its product for the second phase of its metro transport network buildout. The first phase, which made use of Corrigent's gear as well, resulted in sales of more than 1,000 units of the company's CM-100 product.

— Phil Harvey, News Editor, Light Reading

tchandra 12/5/2012 | 3:07:53 AM
re: Orckit Estimates Soar, But Shares Fall Good story. Touches all key points. One clarification needs to be made. The analyst estimates for the June qtr and the Sep qtr and full year 2005, do not factor the higher share count as a result of the purchase/conversion of the remaining 10% Corrigent stake that Orckit doesn't own (Orckit owned 90% of Corrigent at the end of Mar'05 quarter) into Orckit shares. The conversion began during the June'05 quarter partially and as a result fully diluted shares OS were 16.5 mil compared to 16 mil at the end of Mar'05 qtr. Without the additional shares OS this qtr, Orckit would have earned diluted EPS of $0.24 instead of $0.21. Similarly the Q3 forecast by the Company without the additional shares would be and EPS of $0.26 instead of $0.23 after the additional shares. To avoid all this confusion, the best way is to look at the Net Income # instead of the EPS, in this situation.
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