Sycamore Shrinks in Q4

Sycamore Networks Inc. (Nasdaq: SCMR) needs to do something dramatic before it becomes little more than a large pile of cash, if the optical vendor's fourth quarter results are anything to go by. (See Sycamore Reports Q4.)

In the three months to July 31, Sycamore generated $15.1 million in revenues, some way off the $25 million that analysts, on average, had expected and even further away from the $38 million it managed during the same period a year earlier.

After one-time items, the vendor's net loss was $7.8 million, or 3 cents per share. On average, analysts had expected the company to break even.

The company's CEO, Dan Smith, admits the company had "a disappointing fourth quarter and lower than expected annual revenue results," but said the company is investing in new areas that "will be effective in positioning Sycamore for long-term success as market demand for more intelligent, packet-capable optical networking equipment evolves in the coming years."

The company is marketing its capabilities in the video transport, Ethernet services, and software-based service management sectors in a bid to win new business. "We have a lot of the assets to address the [future] needs" of Tier 1 carriers, noted the CEO. (See Sycamore Touts Service Mgmt, Sycamore Wins Deal, Sycamore Intros Metro Switch, and Sycamore Demos Ethernet.)

If the "packet/optical demand" story sounds familiar, that's because another Smith, Gary at Ciena Corp. (NYSE: CIEN), said pretty much the same thing yesterday as he talked up his company's long-term potential in the next generation optical market following a fourth quarter profits warning. (See Ciena Slumps on Q4 Outlook and Ciena CEO: Slowdown Looks Shortlived.)

Another thing Ciena and Sycamore have in common is that their market valuations are fast approaching the value of their existing cash and short-term financial assets. Ciena's current market capitalization is about $1.17 billion, while its cash and short-term investments are worth nearly $1.03 billion in total.

Sycamore, meanwhile, has a market value of $951 million, while its cash and short-term investments are worth $821 million. The company's share price currently stands at $3.37, having recovered from an early morning dip to $3.23.

So is Sycamore still considering what to do with that cash? It is, Dan Smith told analysts on today's earnings conference call, though he wouldn't be drawn on whether it might be returned to shareholders in some way, left in the bank, or used for acquisitions. "We're fortunate to have the capital to be able to, er, capitalize on any [M&A] opportunities," noted the CEO.

The vendor wouldn't be drawn on how it thinks it might do in the new financial year, with CFO Paul Brauneis saying that a "few large core network opportunities" were in the pipeline, and that revenues could be impacted significantly if those opportunities, along with a number of potential but smaller access network deals, resulted in purchase orders.

Despite the sales uncertainty, Sycamore will continue to increase its R&D investments, and will be expanding its Shanghai development center. (See Sycamore Opens in China.)

— Ray Le Maistre, International News Editor, Light Reading

acohn 12/5/2012 | 3:33:02 PM
re: Sycamore Shrinks in Q4 Shock and awe they can even still say the words Customers. who would purchase kit from them?
digits 12/5/2012 | 3:33:01 PM
re: Sycamore Shrinks in Q4 China Netcom is the latest...
Not a bad customer to have...


malibu 12/5/2012 | 3:33:00 PM
re: Sycamore Shrinks in Q4 I don't know why but this is the third article I see saying Ciena has $1.1 bil in cash when in fact they have an $800 mil convertable note which leaves it with only $286 mil net cash or $2.66 per share.
paolo.franzoi 12/5/2012 | 3:32:58 PM
re: Sycamore Shrinks in Q4
He is right however Ray....

They have long term debt of 807,827,000 as of April 30th. Net Assets over net liabilities is about $1B about 1/2 of which is Goodwill (or in other words bs).

In real terms they have about $250M in net cash.

Check the numbers on the Yahoo finance page from Ciena and look at the Quarterly Balance Sheet numbers. Won't see the July quarter till they post the 10Q.

DCITDave 12/5/2012 | 3:32:58 PM
re: Sycamore Shrinks in Q4 In March 2000, SCMR had a share price of $170.

I mean, wow.

digits 12/5/2012 | 3:32:58 PM
re: Sycamore Shrinks in Q4 According to Ciena, on July 31 it had:

Cash and cash equivalents: $873,103,000
Short-term investments: $155,818,000


paolo.franzoi 12/5/2012 | 3:32:57 PM
re: Sycamore Shrinks in Q4
In my mind, Next Level is still the greatest short of all time. I think it topped out at $210 and sold eventually at less than $1.

Polder 12/5/2012 | 3:32:55 PM
re: Sycamore Shrinks in Q4 I think the highest closing price at NLC was $202 although I am sure it was higher than that price during the day. They were acquired by Moto for $1.16. The largest one day fall of the stock was around $45 when Qwest's CEO made negative comments on their video roll out. Calix/ADSL drove them out of the market after they clung to VDSL too long. It was a great product and five years ahead of the competition. Everytime they signed up a major customer, an acquisition ruined the opportunity. BTW, my initial options were granted at $97. Thank God I never exercised them.
materialgirl 12/5/2012 | 3:32:48 PM
re: Sycamore Shrinks in Q4 While not as bad as SCMR or CIEN, fellow optical vendor INFN has about $200M in cash versus an $800M market cap. With all those accurals it is hard to tell, but they seem profitable too.

Now, if we have 50% annual bit growth versus no growth in cap-ex, how do we get our bits delivered over time? Either:

1) The network is going to start failing. I suppose the dropped iPhone calls are just a start.

2) Traffic will move to CDNs.

3) GOOG will become the network.

4) Optical cap-ex will have to resume.

Any guesses?
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