Sycamore works to bring acquisition up to speed

Sycamore Networks has completed the integration of Eastern Research, but the company it acquired last year has yet to return to its previous revenue run rate.

In its first full quarter as part of Sycamore (the company’s fiscal second quarter, ending Jan. 27, 2007), the multiservice edge and access platform vendor acquired last year contributed nearly $11 million in revenue, up sequentially but still shy of the roughly $15 million per quarter it averaged in 2005.

When Eastern’s quarterly revenue dipped from its historical levels last year, Sycamore used the opportunity to renegotiate the price it paid for the company. At the time, Sycamore’s chief financial officer Richard Gaynor described it as “short-term revenue softness.”

On a conference call this morning, Sycamore executives pointed out that Eastern’s fiscal quarters were timed differently than Sycamore’s. On Sycamore’s calendar, Eastern would have averaged more than $12 million per quarter in fiscal 2006, and its revenue in the second fiscal quarter would be up more than 11% sequentially.

Sycamore reported nearly $40 million in total second-quarter revenue, a 14% increase from the first quarter, when the company reported its first contribution from Eastern. Revenue was up 91% from a year earlier, but excluding the Eastern contribution, revenue from Sycamore’s traditional business was up 39%.

Even with the integration of Eastern Research, Sycamore’s business is still highly concentrated. Eighty percent of its quarterly revenue came from just four customers. (Last fiscal year, Sycamore’s top customers were Vodafone, Sprint and Siemens.) At least half of Sycamore’s second-quarter revenue came from a single U.S. customer through what executives called a large, continuing deployment project.

With $915 million in cash and equivalents at the end of the quarter, Sycamore executives remained cagey when asked about likely future acquisitions. But they did announce that the company is hiring. Its Web site currently lists more than 30 open positions, about half of them in engineering.

The Nasdaq stock exchange is currently threatening to delist Sycamore’s stock due to its missing financial reports, and Sycamore is requesting more time to make the necessary filings. An investigation into the company’s stock option grants procedures, which delayed its financial filings, is “substantially complete,” the company said today.