Thursday, September 27, 2007

A Big BANG(band) miss with few lessons for us all

WOW! Was all I could say once the headlines scrolled across the newswire. This was a monumental miss, or a Big Bang kinda miss by BigBand Networks (BBND). It does not get uglier then this. BBND expects revenues to be in the range of $35-$39m vs. expectations of $56m. Company gave a list of excuses for the miss (obviously you can enjoy reading the list in the release). The lessons to learn from this miss is that one-trick ponies that compete in this vigorously competitive market are not for faint-hearted, customer concentration issues are rarely a one-quarter issue and at the end of the day customers could care less for their vendors stock performance. BBND had weak results last quarter as well even though they blamed it on lawsuit expenses last time. But with 5 customers accounting for 73% of revenues last quarter, and two accounting for most of that 73% its a precarious situation. BBND has the technology lead at one time but as development of market/deployments has been slower than expected and as competitors catch up the realities of running a business overrule any technological advantage and as always economics wins over "neat"-technology.
I do feel sorry for John Anthony over at Cowen & Co on of Wall Street's Finest as Jeff Matthews likes to call them- three of his most favorite names include BBND (the other two haven't done much for investors either- PLCM and OPTM).

Tuesday, September 25, 2007

We are back

After a VERY long hiatus- we are back at making this site useful for investors of all levels. We welcome your feedback and would appreciate if you spend time with us again. Thanks for the continued support. Check you for fresh commentary

Adtran's woes probably signals deeper issues in telecom

ADTN officially announced on Friday at 5pm (pacific time that is!- yea I was in the office) that it will fall short of expectations for the September quarter. Nothing wrong with pre-annoucing 4 hours the market closed on a Friday I suppose. Company blamed their legacy business for the shortfall and basically blamed absence of spending typical for Q3 for the shortfall. ADTN is notorious for having "book and ship" business where they typically have very little booked business going into any quarter and that usually means the company has no idea how the quarter will shape up usually. The other notorious company with such luck in telecom is TLAB.

So what do we think this means for telecom, probably nothing more than that T is acting like any large telecom and it really wants to improve its inventory levels. Probably a good thing since with such a large debt balance and with traditional wireline business going no where but down T must start managing its cash flow better. With GOOG upcoming wireless phone service its going to be tough for telecoms to make money in the one area they have protected so far- wireless. As you might have seen in ads for T, the focus is totally on wireless business. You could not imagine T would have offered naked DSL few years back with wireless service but to protect the wireless subscriber base T is pulling all the stops. The question now is not if wireless will be able to save the franchise the question is how long can wireless support legacy before offerings from GOOG or other ad-supported models take over wireless cash flow. The trouble T and VZ have fighting the MSOs only complicates this situation. This probably spells trouble for many suppliers down stream over time as well hence the consolidation in telecom equipment space will continue. I believe investing in the "arms dealers" makes sense to some extent but remember you can only survive arms to the survivors - fewer survivors does no one good.

Also, the bad miss by ADTN probably means other T suppliers will feel some pain also- list includes - TLAB, ADCT, ALU, CIEN, CTV. But doesn't necessarily mean they will miss like ADTN, since ADTN accounted T for 24% of revenues in June quarter. The only other vendor with such large exposure is CIEN with 26% of revenues coming from T in most recent quarter, but CIEN supplies different set of tools for different part of the network for T.