Orckit Communications Ltd fka ORCT

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Unterberg cautious about Orckit after getting burned

By Shirley Yom-Tov

Rick Church repeats Market Perform rating, worries about the competition

On January 30, 2006, Orckit Communications (Nasdaq: ORCT) stock spiked to a 12-month high of $31 per share. Since then, its investors have stopped smiling: shares in Orckit lost 60% over six months.

CE Unterberg Towbin analyst Rich Church was also burned and now he's turned cautious, and points to the risks Orckit faces. Orckit makes advanced high-speed digital modems that enable broadband data access over copper phone lines.

At the end of 2005 he'd upgraded Orckit to Buy. But after the swan dive, in April he downgraded it to Market Perform and now, in his report delivered last week, he has no upgrade in mind.

Orckit's potential to get more orders from KDDI is limited in the near future, nor does he see new orders before the third quarter of 2006. Even if any do materialize, they will focus on limited network deployment in rural areas.

KDDI is Orckit's only significant customer. An anticipated slowdown at KDDI forced the Israeli company to lower its revenue forecast for 2006 to $80-100 million.

Orckit stock from 2005

Orckit is also looking beyond KDDI, a Japanese company, and is contending for work from Tier 1 telecoms companies in the U.S. Japan and India. It wouldn't scorn orders from smaller customers as well, says Church.

It has opportunities but he doesn't expect any of this to generate significant income this year, perhaps from early 2007. Nor does Church see major contracts of more than $5 million to $10 million each in the near future: Orckit could well get bigger contracts but Church doesn't see the telcos reaching any such decisions before the middle of 2007.

He believes Orckit is developing a new product, but sees rivals like the French company Alcatel on its heels, contending for the big contracts. Orckit has more mature technology but it lacks the resources that the giants have, which could make the difference, Church says.

For the year 2006 Church lowered his forecasts for Orckit to $72 million revenue, instead of $87 million, which is less than the company is predicting. His earnings per share forecast is only 42 cents, down from 76 cents.

Orckit itself is projecting 68 to $1.20 cents per share for 2006.

http://www.haaretz.com/hasen/spages/723109.html

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