Continued Development on End-to-End Product Platform
Sycamore demonstrated progress on product development and production fronts,
with advancements on track for long haul transport, core switching products as
well as edge aggregation and switching platforms. In terms of capacity
enhancements, an OC-192 interface is expected to ship in volume for long haul
systems in the April quarter, with volume shipments for metro products following
in FQ1:02. The SN 10000 DWDM long haul and ultra long haul transport system,
supporting OC-3 to OC-192 and gigabit Ethernet, remains on schedule with
previous timing. The platform is expected to ship for initial revenues in the
current quarter, with volume shipments anticipated to follow in FQ4:01. While
the SN 8000 has historically comprised the majority of revenues, the company
anticipates a shift to occur in 2002, when the SN 10000 is expected to become
the most significant product contributor as a percentage of revenues. The SN
16000 optical-electrical-optical (O-E-O) switch is gaining customer traction,
with three additional customers (CoreExpress, Storm and Vodafone) announced
during the quarter. Revenues from the SN 16000 increased to 5% of total
revenues for the quarter, with more meaningful contributions (10-15% of
revenues) expected for fiscal 2001. The higher port density 512x512
configuration with OC-48 transmission speed went into production prior to
year-end C2000. Management indicated that the company is in the process of
completing the grooming fabric for the larger port count switch, and that the
512x512 with full grooming capabilities is expected to be available in the
spring time frame. The two applications that Sycamore targets with this product
are digital cross connect replacement (for which limited intelligence is
required) and building a mesh network where carriers can dynamically allocate
bandwidth. We believe that the greatest near term opportunity will be in the
former application. As for the SN 3000 and SN 4000, Sycamore's edge aggregation
and switching platforms for metropolitan networks, the company delivered the
products to the first announced customer. Deployment is underway at LDcom, and
traffic is running on the SN 3000 (but not the SN 4000). The SN 3000 and SN
4000 are expected to begin to contribute meaningfully to revenues in fiscal2002.
Balance Sheet Solid
Balance sheet items remained strong with cash and marketable securities totaling
$1.1 billion. Accounts receivable DSOs rose by 18 days to 58 days from 30 days
on a sequential basis, reflecting a greater proportion of sales to
international customers and less linear shipments attributed to availability of
some components. We expect DSOs will trend to the company's targeted range of
60 to 90 days as international customers increase as a percentage of the revenue
mix and the overall customer base broadens. Inventory turns in the quarter
equaled 4.9 times, relatively in line with the previous quarter. Inventory
increased 23% sequentially to reach $65.9 million , up from $53.5 million in
FQ1:01. The company's inventory mix reflected a sequential shift in work in
process (45% in FQ2:01, up from 15%), as Sycamore experienced component delays
which impacted the company's ability to finish certain products. Raw materials
remained flat at 33% of inventory while finished goods dropped to 22%, from 50%
in the previous quarter.
Sycamore has established a vendor financing program for two customers,
CoreExpress and Storm, with total commitments standing at $200 million
($100million per customer). At present, draw down advances stand at a total of
$50 million, matching product shipments to these customers. Sycamore did not
recognize revenue from these two contracts in FQ2:01 and expects minimal revenue
recognition in FQ3:01. The company's policy is to recognize revenue on a cash
basis; as such, the value of shipments to these customers was recorded in the
line item "Other current assets" at cost. Vendor financing agreements are not
expected to stretch beyond $250 million through fiscal 2001 and 2002 which
implies another announcement or extension of a financing commitment with an
existing customer is possible in the future.
Excerpts from CSFB 2/14/01 |
