Acquisitions define Adva’s direction

Adva Optical Networking ended 2006 with 50% more employees than it had a year earlier, and nearly 50% more revenue, thanks to two acquisitions that give the equipment vendor added opportunity and added uncertainty in 2007.

Adva acquired both optical vendor Movaz Networks and Ethernet-over-copper vendor Covaro Networks last year, collecting a total of nearly 193 million euros (or about $254 million) in revenue for 2006. The company fell short of its original projection for fourth-quarter revenue, citing deferred revenue from a single project that Adva expects to recognize in the first quarter.

Although Adva is projecting revenue to grow nearly 35%% in 2007 to at least 260 million euros (or about $343 million), the company admits it is not projecting much sequential revenue growth this year because it does not know what the future holds for its partnership with Alcatel-Lucent. Lucent resold Movaz’s optical gear before Adva acquired Movaz last year. The partnership is still in place, though Adva won’t disclose the amount of revenue Lucent contributes.

“We’re very uncertain about the Alcatel-Lucent relationship and what that means going forward,” said Adva’s chief executive officer, Brian Protiva. “One can imagine sales from Alcatel-Lucent decreasing [in 2007]. We’ve always indicated we can’t plan on that long-term.”

Though Alcatel-Lucent has products that rival Adva’s, Protiva said, the newly merged giant has overlap within its own portfolio as well. “There’s a lot of conflict [within Alcatel-Lucent],” he said. “They have to make a lot of difficult decisions.”

On today’s fourth-quarter earnings call, Adva touted its recent appointment as a supplier of Ethernet access equipment to British Telecom, which will integrate with its own operating system the gear Adva obtained through its acquisition of Covaro Networks.

“As a BT [21^st Century Network] direct supplier--the smallest direct supplier--we have a hunting license to look at other applications within their network,” Protiva said. “It’s a strategic position. If we have best-of-breed products, I think we’ll be listened to.”

Adva’s intentions regarding BT, which was a customer prior to the 21CN win, mirror its plans for other large carriers: Get a foot in the door with Ethernet access gear, then work to expand that relationship to include aggregation and optical equipment. In addition to BT, Adva has won contracts with four of the world’s top ten carriers in the past 12 months.

When asked about Provider Backbone Transport (PBT) technology, Protiva said Adva would support both PBT and other alternatives. “A number of carriers have kind of made their decision and are moving forward [with PBT],” he said. “Probably a third are looking at it.”

Though decisions surrounding metro networking technologies are difficult ones for carriers to make, Protiva said, the decision is not likely to delay carrier purchasing decisions simply because carriers cannot afford such delays in the face of rapidly climbing bandwidth needs. “It’s a pressure cooker versus a plan-and-build-in-advance [environment],” he said.