ASC posts $16 million net loss for Q2

Advanced Switching Communications (ASC) blamed delayed spending by customers for its $16 million net loss--38 cents per share--in the second quarter and revised its guidance for the year downward.

The net loss compares with a $6.2 million loss in the second quarter last year and a $1.3 million net loss--3 cents per share--in the first quarter this year. However, the pro forma net loss for the quarter was $8.4 million--20 cents per share--compared to a pro forma net loss of $2.9 million in second quarter 2000, beating the 21 cents-per-share loss expected by analysts polled by Thomson Financial/First Call.

Revenue in the second quarter this year was $1.1 million, considerably lower than the $13.5 million posted in the first quarter and also significantly less than the $7.9 million notched in the same quarter last year. The company also took a one-time inventory charge of $7 million.

President and CEO Asghar Mostafa blamed the current economic crisis for much of ASC’s woes in the quarter.

“The depth and breadth of the downturn in the global telecommunications equipment industry turned out to be much greater than we had anticipated,” he said. “In the final week of the second quarter, a number of customers indicated they would not be placing previously anticipated orders, largely because of the continuing uncertainty of the marketplace.”

One of those orders was substantial, according to Mostafa. He said the customer pulled the order primarily to conserve capital, but he admitted that ASC had also failed to deliver certain product features and functionality the customer requested. Mostafa said those issues have been resolved and that he expects the customer to place the order again in the third quarter.

“We think this represents [delayed] business, not lost business,” he said.

Mostafa said another factor contributing to the disappointing results was ASC’s inability to expand and diversify its customer base by adding established communications companies to its customer roster.

“We have been trying to transition from emerging carriers to more established carriers,” he said. “In light of second-quarter performance, the company is taking steps to restructure sales force to concentrate on this transition, by hiring more seasoned sales representatives who have a history of working with established carriers.”

Despite the larger-than-expected loss, ASC will maintain its research and development efforts, according to Harry D’Andrea, chief financial officer. ASC spent $4.8 million in this area in the second quarter, 11% more than the $4.1 million spent in the first quarter.

“We strongly believe that we must maintain an aggressive research and development effort, even in the face of substantial cost reductions elsewhere in the company. Research and development investment is a critical element in our strategy to lead the marketplace with innovative technology,” D’Andrea said. “We will continue to manage our costs while making those investments required to drive the development of our next generation of products.”

ASC adjusted its guidance for the remainder of the year. The company is now calling for revenues ranging from $1 million to $3 million in both the third and fourth quarters, with total revenues for the year of $16.6 million to $20.6 million, considerably lower than the company's most recent guidance of $55 miilion issued on April 19.

Pro forma net loss for the full fiscal year is expected to range from 58 cents to 62 cents per share. The company expects to have $75 million in cash and marketable securities at year-end.

“Many potential customers are saying that the short-term prospects for their capital spending programs remains clouded,” Mostafa said. “We believe that the downturn in the telecom equipment space is likely to continue through the remainder of the year 2001, and we are adjusting our expectations accordingly.”