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Avici Routed on AT&T Delay

The big telco is slow to upgrade its network, starving a supplier of crucial sales.

In another warning sign for networking gearmakers, Avici (AVCI) says third-quarter sales will fall 70% below second-quarter levels as big customer AT&T (T) - Get AT&T Inc. Report delays spending plans.

Avici shares dropped 25% in early trading Monday after word of the shortfall.

The North Billerica, Mass., telecom-equipment maker says it expects sales for the third quarter ending this month to be about $3.5 million, down from $11.5 million in the previous quarter and well below the $13 million analysts had expected.

Avici makes large routers that sit at the core of communications networks and manage traffic flow. Avici is the No. 3 router maker behind

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

and

Juniper

(JNPR) - Get Juniper Networks, Inc. Report

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.

Unlike its rivals, Avici is heavily reliant on one major customer -- AT&T. But AT&T, a bellwether of sorts for the troubled telecom industry, finds itself in the midst of a massive retreat from the consumer market and a price war in the business services market.

Avici CEO Steve Kaufman says he doesn't expect AT&T to resume significant network upgrade spending until next year. Kaufman says he is "optimistic given the strong funnel of activity" the company has.

As for the sector, Kaufman says he sees capital spending declining in the second half of this year. But for Avici, he remains encouraged about next year and the prospects of being the primary core router supplier to AT&T.

"AT&T is an incredibly valuable resource, a tremendous lead customer," says Kaufman, "much the same way

MCI

(MCIP)

and UUNet were important lead customers for Juniper."

But Juniper managed to expand its customer list well beyond its lead telco. Until Avici does the same, it's likely to be rough going for the company's shareholders.