Next Level revises outlook downward

(Telephony) Citing reduced revenue from Qwest and slower than anticipated customer development in Korea, VDSL vendor Next Level Communications said its fourth quarter 2000 results would be lower than anticipated and that 2001 earnings also would be reduced.

Next Level said net loss for the quarter would be about 22 cents a share on revenues of about $31 million. The company expects fiscal 2000 revenues to be about $150 million, a 160% increase over the $57.6 million reported in 1999. Net loss for the year is expected to be about 72 cents, an improvement over the 99-cent net loss reported in 1999.

Qwest revenue was down $15 million to $20 million from what Next Level anticipated, said president/CEO J. Michael Norris, pointing to cost target demands set by the carrier as one reason for the drop-off.

"They gave us a set of objectives which are tough," Norris admitted. "They have strong cost targets in them."

On the other hand, he said, Next Level has "beat the first one a little bit," and "we know what we have to do. We can expect our orders going into next year to be in line with the performance that we continue to show as we go down that cost curve."

Norris said that a new product line is also building confidence that cost milestones will be met.

"We're confident, but we're also making sure that we do what we say we're going to do," he said.

Next Level, he emphasized, continues to get orders from Qwest.

"We're not going into the first quarter without orders from Qwest," he said.

Next Level's new product line also caused the company to take a $9 million to $10 million quarter charge for inventory revaluation. Specifically, the supplier said it was cutting the prices on its residential gateways so customers would not stop ordering while waiting for the new product line.

Next Level has pushed back expectations for any revenues coming from two Korean customers until the second quarter of this year.

"I think there have been some political issues which have really impacted us and perhaps a little naivete on our part on how long it takes to deploy international accounts," Norris admitted.

To accelerate the process, he said, Next Level is seeking help from Motorola, an investor in the company which "has some fairly extensive distribution capabilities there and are using their infrastructure and some of their senior leadership to help us through part of this morass."

Norris remained upbeat about Next Level's business, which will be more fully detailed with a fourth quarter earnings report Jan. 24. The company has two international commercial trials, three that are in advanced field trial stage and three that are lab trials, Norris said.

"More importantly, we have successfully diversified our customers base. A year ago we had only 27 customers; in this quarter alone we gained 16 customers, bringing our total count – which includes ILECs, RBOCs and international cable customers – to 92," he concluded.