ADVA Q1 revenues decline to $101 million on slower carrier sales

ADVA Optical Networking (XETRA: ADV.DE) felt the headwinds of service providers tightening their purses, and the results of a temporary shift in priority to focus on ramping up LTE in their wireless networks, as revenues dropped 5.7 percent year-over-year and 4 percent sequentially to €77 million ($101 million).

Despite the drop in revenue, the vendor said its results were in line with the upper end of the guidance it issued for the quarter between €72 million ($94 million) and €77 million ($100.6 million).

"While the temporary decline of our business related to short-term market weakness driven by adverse macro-economic conditions and temporary shifts in carrier investment priorities clearly is a disappointment, we are still pleased to report our Q1 2013 revenues of €77 million at the upper end of guidance," said Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking, in the earnings release. "Our pro forma gross margin decreased from 41.8% in Q4 2012 to 38.6% in Q1 2013, due to quarterly variations in product and customer mix."

From a regional perspective, EMEA continued to be the dominant area of revenue growth, contributing 62 percent of total revenue in the quarter. Trailing EMEA were the Americas and Asia-Pacific regions, which contributed 33 and 5 percent of revenue, respectively.    

While it's true that many service providers have temporarily shifted their investment priorities to LTE investments, ADVA Optical Networking cites new potential in two areas of the optical market: 100G core network optical and shifting metro packet-optical transport.

One of the proof points ADVA Optical Networking gained in its 100G story during the quarter came from Kabel Deutschland. The cable MSO is using the vendor's FSP 3000 platform for a new nationwide mesh backbone network.

Even with large wins like Kabel Deutschland, the vendor continued to see ongoing spending delays from other carrier customers, a number of which have been focusing more of their recent network upgrade attention on the radio access of their networks to support new wireless LTE deployments.

"Due to uncertain macro-economic conditions, carriers have been restricting investment in their networks for some time," Brian Protiva, chief executive officer of ADVA Optical Networking, in the earnings release. "Also, there have been temporary shifts in carrier investment priorities towards the ramp of LTE technology, delaying access and core infrastructure spending. However, in order to eliminate network outages, and under pressure to transform their business models, carriers will need to drive network efficiency to support increased volume and diversity of LTE traffic types while keeping tight control of costs."

Protiva added that they can play a bigger role in role in the wireless operator's backhaul network by providing software-defined networking (SDN) capabilities

"Operators need a roadmap for incorporating the cost-saving and revenue generating potential of software-defined networking (SDN) into the backhaul network," he said. "Over time SDN will become a critical enabler of leveraging greater intelligence into the backhaul network, as increasingly intense usage of real-time multimedia voice and video services creates new challenges with respect to congestion control."

Similar to Q1 2013, ADVA has forecast Q2 revenues to be between €73 million ($95 million) and €78 million ($102 million).

Shares in ADVA Optical Networking were listed at $3.76, down 0.03, or 87 percent, on Thursday morning on the XETRA stock exchange.

For more:
- see the earnings release

Earnings roundup: Wireline telecom earnings in the first quarter of 2013

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