Copper Mountain sinks lower

(Telephony) DSL equipment provider Copper Mountain reported an ugly first quarter yesterday, marked by a drastic reduction in sales, a substantial operating loss, and restructuring charges related to a 23% cut in its work force.

The vendor of central-office and digital loop DSL gear recorded quarterly revenue of only $8.2 million, down from $60.8 million for the same period last year. Although the number was in line with recently reduced expectations, it was well off the original forecast of $50.9 million, according to First Call/Thomson Financial.

Excluding pro forma adjustments of $48.5 million, Copper Mountain reported an operating loss of $10.7 million, or 20¢ per diluted share. The company’s net loss was $66.9 million, or $1.27 per share, compared to net income of $13.7 million, or 24¢ a share, in the comparable quarter last year.

“This has been another challenging quarter for Copper Mountain and the telecom equipment sector, with continued deterioration in the CLEC market and perhaps more important, an overall economic climate that has led many telecom providers to eliminate or delay capital spending,” said Rick Gilbert, Copper Mountain’s chairman and chief executive.

Copper Mountain’s largest customer last year, NorthPoint Communications, has ceased operations. Rhythms NetConnections, another nationwide DSL provider and Copper Mountain customer, has secured a financial advisor to help it evaluate options in an attempt to resolve its financial woes.

Copper Mountain expects the current quarter of 2001 to be on par if not worse than the first quarter, projecting revenue between $5 million and $9 million. Gross margins, which declined from 54% in the fourth quarter to 45% in the first quarter, also will continue to decline as the company works off excess inventory, said Mike Strager, chief financial officer. Earning per share guidance was not given.

“Based on continuing extreme volatility, our specific guidance does not extend beyond the second quarter of 2001,” he said.

Copper Mountain is trying to expand its sales base beyond DSL, as it introduced a T1 voice and data integrated access device and associated line cards during the quarter. At SuperComm, the company is launching a broadband services concentrator for large-scale DSL networks.

“We’re hearing very encouraging feedback from potential customers,” Gilbert said. “Although the demand for broadband equipment has slowed, the fundamental demand for broadband services remains strong. Eventually this demand will be met.”

Copper Mountain is also hopeful about the pending sale of NorthPoint’s assets to AT&T. The sale included Copper Mountain CE200 DSLAMs and ADSL line cards.

“It is clearly an important Copper Mountain goal to support AT&T in any way possible,” Gilbert said. “We see AT&T as aggressively attacking the DSL consumer market and as a very interesting potential partner for us.”

The first quarter’s $48.5 million charge included a $35 million charge related to excess inventory and outstanding purchase commitments to vendors, a business restructuring charge of $4.4 million for severance and excess facilities and equipment, a $2.6 million charge related to the collectability of certain lease receivables, and a $625,000 charge related to the decline in fair market value of the company’s investment in Southern California Edison.

Copper Mountain ended the quarter with $138 million in cash and short-term investments, down from $162.6 million at the end of 2000.