New CEO struggles to turn Avici around

In his first quarterly earnings call as Avici Systems' new interim CEO, Bill Leighton said he was very pleased with the company's management team but "clearly disappointed" with the amount of revenue Avici earned in the second half of the year.

The core router vendor reported $3.8 million in revenue for the quarter, which was up 2% sequentially and down 67% from a year earlier. Avici's net loss for the quarter--excluding special charges--was $9.2 million, 26% wider than a year earlier.

For the year 2004, Avici reported revenue of $26.6 million (a 32% decline from 2003) and a net loss--excluding special charges--of $33.8 million, a 12% improvement from 2003, which the company attributed largely to decreases in depreciation expenses.

"I spent the last two months working with the company's leaders, evaluating where we are, where we've been and where we need to go," said Leighton, a former longtime executive at AT&T, Avici's biggest customer. "Having been a customer, I have some different perspectives on things, and we're using that to work through some of this."

"We did a systematic root-cause analysis of every win, loss and non-decision," he said. "We boiled that down to a list of five or six things that either worked for us or against us and are taking systematic action against each of those things."

Only three customers contributed to Avici's $3.8 million in quarterly revenue, of which AT&T represented some amount greater than $3 million, the company said. Two and a half million dollars in fourth-quarter revenue came from Avici products, while the other $1.3 million came from services.

Avici ended up not benefiting from a contract with China Telecom won by Avici's Asian partner, Huawei Technologies, because the deal involved a small part of the network where Avici's large core routers weren't needed, Leighton said. And Avici's North American partner, Nortel Networks, didn't contribute much revenue during 2004, he said, though it did help Avici ship products to two European customers in the fourth quarter, the revenue from which will be recognized in mid-2005.

"Nortel's got a pretty good-sized pipeline of opportunities we're pursuing," said chief financial officer Paul Brauneis.

With no debt, Brauneis predicted that the $69 million in cash and investments with which Avici ended the year was "sufficient to support normal operations for the foreseeable future into 2006."

When asked how a possible acquisition of AT&T by SBC might affect Avici, Leighton said, "That falls into the category of speculation. The appropriate place to do that would be to sit around a bar some night with beers and work through all the different scenarios involving consolidation in the industry."