Alcatel-Lucent cancels Adva orders

Alcatel-Lucent pulled away from its partnership with Adva Optical Networking in the second quarter, dragging down Adva’s revenue and even canceling some existing orders for Adva’s wavelength-division multiplexing (WDM) gear, Adva said today.

Revenue from Alcatel-Lucent dropped by 11 million euros (or about $15 million) sequentially in the second quarter. As a result, Adva’s revenue from the Americas—historically its second biggest market, behind Europe, the Middle East and Africa, though a major focus of the company—dropped 28% sequentially to about 21 million euros (or nearly $29 million) in the quarter. The Americas contributed just under a third of Adva’s total revenue for the quarter.

Adva has typically not divulged Alcatel-Lucent’s contribution but revealed today that it amounted to 10% of Adva’s total second-quarter revenue, which was up 64% from a year earlier and down slightly sequentially to 67.5 million euros (or more than $92 million). In the third quarter, Adva expects Alcatel-Lucent to contribute 2% of total revenue, or at least 1.2 million euros ($1.7 million).

Adva’s partnership with Alcatel-Lucent stems from one dating back to at least 2004 between Lucent Technologies and WDM vendor Movaz Networks, which Adva acquired two years ago. Lucent merged with Alcatel and acquired Movaz rival Tropic Networks in April of this year. But even without the Tropic acquisition, Alcatel-Lucent’s product portfolio contained plenty of overlap with Movaz’s gear, and Adva’s management had always anticipated--and even planned for--the possibility of Alcatel-Lucent fading away.

Though Adva expects revenue from Alcatel-Lucent to decline “strongly” in the third quarter, the company expects to more than offset those losses in the fourth quarter and the full year.

Adva also reported a cost allocation problem today that would force the company to restate its first and second quarter earnings. Company management mistakenly misallocated costs in the first two quarters, leading the company to miss its earnings and gross margin projections for the second quarter. The problem stemmed partly from an unusually high volume of orders in the first quarter, Adva said.