ADVA Has a Growth Spurt but Margins Lag
ADVA Optical has found its sales groove, it seems. Earlier this year the European optical and Ethernet systems vendor reported a 30% leap in full-year revenues for 2015 to 441.9 million. (See ADVA Reports Significant Increase in 2015 Revenues .)
Now ADVA Optical Networking (Frankfurt: ADV) has reported revenues for the first half of 2016 of 279.2 million (US$307 million), an increase of 34.3% compared with the same period a year earlier. Those numbers include second-quarter revenues of 157.2 million ($173 million), a record quarter for the company. (See ADVA Reports Record Revenues in Q2.)
But what is driving this growth in 2016? How much of this is linked to the acquisition in January this year of Overture Networks? (See ADVA CEO: Overture Acquisition Adds to Our Open NFV Pitch and ADVA Adds NFV Smarts With $35M Overture Acquisition.)
A bit of digging into ADVA's earnings report uncovered that detail: Overture has contributed 15.6 million ($17.2 million) in revenues and 80,000 ($88,000) to net income.
That means ADVA's legacy optical and Ethernet equipment lines of business (not including Overture's NFV and Ethernet equipment assets) generated first-half revenues of 263.6 million ($290 million), an increase of 26.8% compared with the first six months of 2015. At any time that would be considered an excellent result: In current market conditions that looks like a great number. Increasing demand from network operators in EMEA and North America and the ongoing success of ADVA's data center interconnect system (the FSP 3000 CloudConnect) with data center operators are the main drivers behind ADVA's growth. It's that sort of growth, momentum and ability to capitalize on demand that helped ADVA win the Company of the Year (Public) award at this year's Leading Lights. (See Leading Lights 2016: The Winners.)
But there are challenges: ADVA's gross margin has dropped, to 29.5% for the first six months of 2016 from 35.2% a year earlier, while the company's operating income dipped by more than 60% to just 4.1 million ($4.5 million). That's maybe why ADVA's share price is flat today at 7.72 despite the impressive sales growth.
The company has some costs associated with its Overture acquisition, certainly, but the company will appear a whole lot stronger if it can continue to generate new business and increase its margins as well as its revenues.
Ray Le Maistre, , Editor-in-Chief, Light Reading