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Sycamore's Freefall Continues

Raymond McConville
News Analysis
Raymond McConville
5/29/2008

Sycamore Networks Inc. (Nasdaq: SCMR)’s descent towards irrelevance continued today as the company reported that its third-quarter revenues fell by more than 50 percent.

As the company had warned in a pre-announcement in April, the shortfall was caused mainly by a drop in orders from one major customer -- almost assuredly Sprint Corp. (NYSE: S), although Sycamore is not officially saying so. (See Sycamore Reports Q3 and Sycamore Suffers Sales Shortfall.)

Sprint makes up over 50 percent of Sycamore’s sales. And Sycamore isn’t expecting Sprint -- er, the carrier in question -- to rescue it anytime soon.

“We believe that we will continue to experience unpredictability from this particular customer in the near term. It is highly likely that our previous objectives of equaling or exceeding our fiscal 2007 revenue level will not be achieved,” said CEO Dan Smith on the company’s earnings conference call today.

A lack of customer diversity has plagued Sycamore for some time now. Including Sprint, the vendor has three customers that each make up more than 10 percent of its sales. “Our revenue unfortunately represents the challenges and unpredictability of having such a concentration,” said Smith.

Sycamore is trying to expand its customer base, but not everyone shares its optimism that it can do so.

“On the optical side they’ve become a non factor in the industry for the past six or seven years,” says Sterling Perrin, senior analyst with Heavy Reading. “The prospects for them to come out of this are slim to none.”

Sycamore is not alone in (apparently) blaming Sprint for its financial woes. Fellow optical vendor Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) also indirectly singled out the carrier for its disappointing outlook. (See Wireless Slowdown Hits Tellabs and It's All Sprint's Fault.)

For the third quarter of 2008, Sycamore lost $2.7 million, or 1 cent per share, on revenues of $21 million. In the same quarter last year, it earned $6.7 million, or 2 cents per share, on revenues of $43.6 million.

Shares of Sycamore are trading flat, because the company had warned of this shortfall back in April. (See Sycamore Suffers Sales Shortfall.) On that day, the stock fell 12 percent.

— Raymond McConville, Reporter, Light Reading

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