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Technology Stocks : Corvis Corporation (CORV) -- Ignore unavailable to you. Want to Upgrade?

To: SemiBull who wrote (1533)	5/21/2002 12:53:27 AM
From: tech101	Read Replies (1) \| Respond to of 2772

Too Rich to Die? Brendan Barrett washingtonpost.com Washington Techway Staff Writer Wednesday, May 15, 2002; 10:34 AM Plenty of tech companies have suffered swift deaths in the past two years, but a lucky few are too rich to die, at least anytime soon. Advanced Switching Communications of Vienna is a good example of one that didn't spend too much time on life support. In the fall of last year, the telecom equipment provider's quarterly revenue dropped more than 90 percent after it lost its major customer. Within a few months, ASC drew up a plan of liquidation that shareholders approved last month. With no new major customers on the horizon, the company realized it was in the best interest of shareholders to liquidate while it still had $78 million in cash and equivalents on its balance sheet. Corvis, on the other hand, is a very wealthy patient in intensive care. The Columbia-based manufacturer of optical networking equipment reported first quarter revenue of $8.7 million, a staggering 90 percent drop from a year earlier and 43 percent lower than the prior quarter. The outlook is grim. Merrill Lynch analyst Simon Leopold says the optical networking market won't really recover until 2004, after telecom carriers begin to increase spending. "I haven't given [Corvis] up for dead, but certainly the projections are challenging," he says. One of Corvis' five customers, Williams Communications, filed for bankruptcy in late April. Around the same time, another customer, Qwest Communications, restructured a contract, reducing the amount of Corvis equipment it promised to buy over the next two years from $150 million to $12 million. The good news is Corvis has $612 million in the bank, enough to last three years, analysts say. That gives the company plenty of time to continue to do what it did in the first quarter - burn through more than $40 million in cash as it generated under $10 million in revenue. And analysts don't expect profitability for years. Corvis raised more than $1 billion from an initial public offering in mid-2000 at a time when the company hadn't even generated revenue. Shortly thereafter, its stock hit over $100 a share. At the end of April, Corvis was trading at $1.20 a share, even though the cash on its balance sheet alone is worth $1.70 a share. "They're worth more in liquidation," says David Gross, an optical networking analyst at Communications Industry Researchers in Charlottesville. "I think [CEO] David Huber's ego has gotten in the way of doing what's in the best interest of shareholders." To be sure, Corvis and dozens of other companies are victims of the telecom depression. Most analysts highly regard Corvis' products. The problem is few telecom carriers have the budgets to buy them these days. Though being a cash-rich, customer-starved company is unusual, Corvis isn't alone. Sycamore Networks, a Massachusetts optical networking company, is in the same situation. So should Corvis liquidate, or should it continue to operate, hoping that the telecom sector turns around before the company depletes its cash? Assuming an investor was unfortunate enough to buy its stock around $100 a share shortly after the IPO and continue to hold it, that person has already lost about 99 percent of the investment. What's the rush on maximizing shareholder value at this point by liquidating? With $612 million in cash, no debt and a stock price below cash value, Corvis is a potentially very attractive acquisition target. The only problem is that the usual acquiring suspects, which include Nortel Networks, Lucent Technologies and Cisco Systems, are too busy working through their own problems to make acquisitions. Corvis needs some time - perhaps the market will improve or a buyer will surface. And time, unlike a customer, is something the company can buy.