Sycamore beats estimates by a whisker

(Telephony) Optical equipment provider Sycamore Networks posted second-quarter earnings that beat analysts’ estimates by a penny while warning of a slowdown in quarter-to-quarter sales growth for the second half of fiscal 2001.

Revenues for Sycamore’s second fiscal quarter ending Jan. 27 were $149.2 million, a 24% sequential increase from the first quarter and a more than fourfold increase over 1999.

Pro forma net income, which excludes the amortization of deferred stock compensation and payroll tax on stock-option exercises, was $18.1 million, or 6¢ per diluted share, compared with a pro forma net loss of $1.7 million, or 1¢ per share, for the year-ago period. The earnings per share figure beat analysts estimates of 5¢ per share, according to First Call/Thomson Financial.

While sales of Sycamore’s SN8000 optical transport product still comprise a majority of the company’s revenues, sales of new switching products are progressing, according to President and CEO Dan Smith. In recent months, Sycamore added three customers for the SN16000 intelligent optical switch and captured some business for its optical edge product, the SN3000 optical access switch.

The SN16000 accounted for about 5% of Sycamore’s second-quarter revenue and should capture between 10% and 15% of the company’s revenues for fiscal year 2001, Smith said.

“It is our intention to be the leading provider of intelligent optical switching technology by the end of the calendar year,” said Desh Deshpande, Sycamore chairman.

Despite the strong performance in the second quarter, Smith warned financial analysts that “a great deal of uncertainty” regarding capital spending by service providers could cause Sycamore’s sequential growth rate to slow in the next two quarters.

“It is not surprising to see a period of reflection as service providers review their capital expenditures,” Smith said. But “the demand for bandwidth will demand that service providers continue to invest in their networks.”

The vendor left 2001 revenue and earnings projections unchanged. Sycamore projects 2001 revenue of $600 million, up about 205% to 210% compared to the $198.1 million in sales last year. It left pro forma earnings estimates unchanged at a range of 21¢ to 24¢ per share. For 2002, Sycamore reiterated a revenue growth target of 65% to 72% and earnings at the low end of analysts’ consensus range of 32¢ to 39¢ per share.

Williams Communications accounted for about half of Sycamore’s revenue in the second quarter, a fact that has become a sore point with financial analysts. The vendor is trying to diversify its customer base by bringing on interexchange carriers and international PTTs, but doing so is also putting dents in its balance sheet, according to company executives.

For example, the longer payment cycle for international customers caused Sycamore’s second-quarter accounts receivable to increase to $95 million from $45 million. Days sales outstanding increased by 28 days.

Company executives said that, for the first time, Sycamore has begun helping service providers finance equipment purchases.