Avici enjoys first-ever profitable quarter

Avici Systems swung to a profit in the second quarter as it reported its highest quarterly revenue ever, the ten-year-old core router vendor reported today.

Avici reported $25.3 million in revenue, an 18% sequential improvement and an 118% improvement from a year earlier. Based on generally accepted accounting principles, the second quarter was also Avici’s first profitable quarter ever, earning the company $7.9 million in net income, or 58 cents per share.

The revenue surge came from meeting the capacity demands of its chief customer, AT&T, which is adding both chassis and line cards (mostly line cards) to its Avici backbone network--a phenomenon Avici reported in the first quarter as well. Following its merger with SBC, the carrier is accelerating its efforts to transfer traffic from SBC’s network to its own, said Bill Leighton, Avici’s chief executive officer. “If you’re AT&T, you want to move that traffic onto your network, and you want to do it fast, for two reasons: You want the cost benefit of doing it, which is not trivial, and you need to get ready to do it again, with BellSouth and Cingular [Wireless] coming on board.”

Avici declined to say exactly how much of its second-quarter revenue came from AT&T other than that it was “the predominant share.”

On the company’s earnings conference call this morning, Leighton cautioned investors that Avici’s business--which rests heavily on sales of a single product to a major customer--is inherently lumpy and unpredictable. “Shareholders should not expect our 2006 financial performance to date to be indicative of future performance,” he said. Using historical seasonal patterns as a guide, Leighton said revenue in the second half of the year is unlikely to match that from the first half.

But the company also raised its expectations for the year from the $50 million range to between $75 million and $85 million. And when asked if Avici would remain profitable in coming quarters, Leighton said, “That’s our plan.”

In addition to its financial achievements, the company touted some technological milestones in the quarter as well. By installing its TSR core router in a “quad bay configuration,” the company claims to have deployed the “first and only true terabit router” in a production network. Avici also claimed to have delivered the world’s largest-capacity link in production: 75 Gb/s.

As part of ongoing cost-cutting efforts described in February, Avici ended the quarter with 178 employees, nine fewer than it had three months earlier.

As it announced in February, the company is still seeking “strategic alternatives” and has had discussions with multiple interested parties involving a possible sale of the company. Avici is also searching for a replacement for its chief financial officer, who left in May.