KDDI not seen stepping up deployment of Orckit equipment
Oscar Gruss analyst Roni Biron cut his revenue forecast for Orckit to $68.8 million.
Gitit Pincas 24 Jul 06 12:59
When a company is dependent on a single large customer, any sneeze by that customer is liable to give the company a bad cold. The shareholders in Orckit Communications Ltd. (Nasdaq: ORCT; TASE: ORCT) know this very well, each time that the company’s large, and almost sole, customer, KDDI Corp. (TSE: 9433) of Japan, publishes an update. KDDI’s latest update on Friday indicates that Orckit will not see immediate orders. Orckit will publish its financial report for the second quarter next Tuesday.
For two years, Orckit subsidiary Corrigent Systems Inc. has been selling optical transport solutions for KDDI’s metro and national networks. Corrigent’s product enables voice, video, and Internet connectivity. Orckit is dependent on KDDI for every stage of the project. The first stage is the initial coverage of the network in key cities. Once there are enough users, capacity will be expanded in the second stage. Orckit simultaneously hopes to win new contracts.
On Friday, KDDI published its financial report for the first fiscal quarter of 2007 ending in June 2006 (the company’s 2007 fiscal year ends in March 2007). Oscar Gruss analyst Roni Biron concludes that KDDI has no reason for placing more large orders with Orckit over the next three months. Although he kept his forecasts for Orckit for the second quarter, he slashed his forecasts for the year. He now predicts that the company will post $68.8 million revenue, $10 million less than his previous forecast, and cut his earnings per share forecast to $0.37 from $0.65. He kept his “Buy” recommendation for the share, but cut the target price from $15 to $13, which is still 45% above its current market price.
C.E. Unterberg Towbin analyst Richard Church added some positive aspects. In a conference call, KDDI’s management said it would continue deploying advanced equipment in mountain regions, which could generate millions of dollars in revenue for Orckit.
Orckit has been greatly disappointed as far as new customers are concerned. Previous indications by the company implied an announcement by the end of the second quarter, but it hasn’t happened yet. Next Tuesday, it will possible to learn whether the company will pull a rabbit out of its hat in the form of a new customer, or whether it will still rely on KDDI and new leads. At a recent C.E. Unterberg Towbin conference, Orckit CFO Aviv Boim said the company was bidding in tenders and trials, and that he was waiting for new wins in Asia in late 2006 and early 2007. He isn't the only one waiting.
Published by Globes [online], Israel business news - www.globes.co.il - on July 24, 2006
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