DJ TALES OF THE TAPE: Calls For More Corvis Customers
26 Mar 14:01
By Peter Loftus
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Corvis Corp. (CORV) hasn't announced a new customer
since its explosive initial public stock offering last July, and investors are
losing patience.
The Columbia, Md., optical network equipment maker has only three customers -
all telecommunications companies - and two have been Corvis shareholders since
before the IPO.
Corvis' shares have fallen 56% during the last three months and are down 90%
from their post-IPO high. The stock hit a 52-week low of $6.41 on March 9 and
recently traded around $8.
If Corvis doesn't announce new customers soon, shares could fall further as
fed up investors bolt.
"The market has run out of patience a little bit with the lack of customers,"
says Brian Miller, telecom equipment analyst at Invesco Funds, one of Corvis'
biggest institutional shareholders with 3 million shares.
"We've been promised a couple of customers over the last few months, and
haven't seen any."
Corvis has been tantalizing investors for several months with possible new
customers. Earlier this month, Chief Financial Officer Anne Stuart told
investors at a conference here the company expects to add one or two new
customers by midyear.
Corvis has been in talks with most of the top 20 to 30 telecom backbone
network operators, a spokesman told Dow Jones Newswires.
The company may be dropping subtle hints about new customers. A recent Corvis
press release announcing its new CorWave system included a quote from an
executive at France Telecom (FTE), speaking of the need for products like
CorWave.
A France Telecom spokeswoman declined to comment. A Corvis spokesman declined
to say whether France Telecom was a likely customer.
James Jungjohann, a CIBC World Markets analyst, said he believes Corvis has
five major customer prospects lined up, with a good chance of signing one or
two in the next two months. He declined to identify them.
But Corvis faces several obstacles: telecom carriers have reduced capital
spending amid the economic downturn, the company's prices remain expensive and
Corvis' gear is so different from standard network equipment that network
operators are taking a long time to size it up.
"What we're facing are the delays by some service providers in approving
capital plans," said the spokesman, adding that the sales cycle for optical
gear is generally longer than that for standard electronic equipment.
Frustration over Corvis' customer track record is tempered by the fact that
many investors and analysts believe firmly in Corvis' products.
The company was founded in 1997 by David Huber, an enigmatic scientist who
also created Ciena Corp. (CIEN), another optical network company.
The highlight of Corvis' product line is an optical switch designed to help
transmit huge amounts of voice and data traffic over long distances more
quickly than standard electronic switches. It's been billed as the first
commercially viable optical switch.
Excitement over Corvis was displayed last July when its stock closed 132%
above its offering price on its first day of trading. It hit a high of $114.75
on Aug. 7.
Telecom carriers Williams Communications Group Inc. (WCG) and Broadwing Inc.
(BRW) fueled the enthusiasm, each pledging to purchase $200 million in Corvis
gear over two-year periods. Williams has widened its commitment to $300
million.
A third customer, Qwest Communications International Inc. (Q), has agreed to
buy $150 million in Corvis products.
As a result, Corvis's revenue rose to $46 million in the fourth quarter ended
Dec. 31 from zero in the second quarter. Robertson Stephens analyst Paul
Johnson expects annual revenue to more than quadruple to $320 million in 2001
from $68.9 million last year.
But some view the revenue buildup with skepticism. Most of the money has come
from Broadwing and Williams, both of whom bought Corvis shares before and
during its IPO.
Some investors in Broadwing and Williams might worry the companies are biased
in favor of buying Corvis products instead of a competitors' because the
purchases would support their investments in Corvis, analysts say.
Corvis investors, they say, might wonder whether Corvis products are good
enough to draw buyers who don't have a direct interest in seeing Corvis stock
price rise. So far, only Qwest falls into that category.
"It's harder for other investors to know what the true validation of a
technology is, if the only companies buying the equipment are investors, and
you didn't see other service providers actually buying the equipment," says Tom
Lauria, telecom equipment analyst at ING Barings LLC.
The Corvis spokesman said Williams and Broadwing invested in the company
after seeing the value of Corvis products. He also noted Williams completed its
field trial after the Corvis IPO, then decided to go ahead with a full-scale
contract.
Representatives for Williams and Broadwing couldn't be reached for comment.
Miller, the Invesco analyst, said he doesn't think Crovis' relationship with
its two main customers is a huge concern, but could create an image problem.
"They have to prove to people they can get customers who aren't
shareholders," Miller said. "Until we see that, then people aren't willing to
make a big bet."
The sharp decline in Corvis stock nevertheless has created a buying
opportunity, with the shares poised to rise again when Corvis announces new
customers.
"There is a substantial upside potential here, but no one's going to give
them credit for it in this market," said CIBC analyst Jungjohann.
-By Peter Loftus, Dow Jones Newswires; 201-938-5267;
peter.loftus@dowjones.com
(END) DOW JONES NEWS 03-26-01
02:01 PM |
