FALLOUT FROM CARRIER SECTOR MEANS MORE VENDOR WOES

Ciena, Corvis report poor financials after canceled equipment orders

Like a cloud from an atomic bomb, the fallout from recently announced service provider quarterly reports is reverberating throughout the equipment vendor community. With troubled providers halting orders in progress, many question which vendors will survive the downturn.

Contracts with established providers are supposed to sustain vendors, but suffering from carriers such as AT&T and Qwest Communications has translated into poor revenue for Ciena, Cisco Systems and Corvis.

Last week, long-haul vendor Ciena lowered its first-quarter guidance to reflect operational and restructuring charges. Ciena's numbers suffered because “several major customers made substantial changes” in anticipated orders during the quarter, said Chief Financial Officer Joseph Chinnici.

Ciena expects to have revenue of $160 million and a net loss, after exclusions, between 19¢ and 22¢ per share. Analysts had expected revenues for the quarter to be around $227.14 million. The company also plans to close a Massachusetts manufacturing facility and eliminate 400 employees — 12% of its work force.

“It goes without saying we are disappointed with this quarter's results,” said Ciena President and CEO Gary Smith, noting that the first quarter is usually a good one. “Even now, many customers' capital budgets remain uncertain.”

But Ciena's revenue decline represents a shrinking market, not a loss of market share, Smith added.

“We do not believe we are losing [the business] to competition,” he said.

He may be right. While Cisco was able to beat First Call estimates of 5¢ per share and report income of $660 million, or 9¢ per share on revenue of $4.8 billion, the company has low visibility and sees flat revenue growth in upcoming quarters.

“No one is really sure of the next couple of quarters,” said Cisco Chairman and CEO John Chambers. Of course, Cisco has a broad customer base and deep pockets. The downturn could be more troubling for smaller, younger companies such as long-haul optical vendor Corvis.

Last week, Corvis reported a fourth-quarter loss of $39.9 million — 67% larger than a year ago. CEO David Huber confirmed that the company's equipment deal with Qwest inked last year has been canceled, though the companies plan to work together in the future. Corvis received revenue from Broadwing Communications and Williams Communications this quarter, yet Huber said the company has six customers for its optical products.

Relying on a slim customer base is risky in this market, said Doug McEuen, senior analyst for Pioneer Consulting.

“There is a benefit to having realistic equipment,” McEuen said. “If a vendor isn't making money now, chances are they're not going to make it.”

In its favor, Corvis has no long-term debt and has $660 million in cash and short-term investments. The company also has reduced its burn rate to $55 million per quarter, Huber said.