ECI Telecom

(Nasdaq:ECIL) surprised the market after trade had closed on Monday by publishing a second warning regarding the fourth quarter of 2000.

The company said that because of lower than expected income, it will be reporting an operating loss of $35 million to $40 million. The loss is significantly higher than written in its earnings warning published on December 14, 2000. Then the company warned that its operating loss would be at most $20 million. ECI anticipates that its fourth-quarter revenue excluding one time charges will come to $290 million to $300 million, about 10% less than appearing in its previous earnings warning.

ECI blames the increased operating loss on a combination of factors, all resulting in lower revenue. The company says that DCME sales have dropped more steeply than projected, and sales of SDH optic products did not increase as much as expected.

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Moreover, ECI also said it will be restating the last three quarters according to SAB 101. Adjusting its sales figures to the more stringent requirements of Paper SAB 101 of the Securities and Exchange Commission will result in lower numbers.

Applying SAB 101 will apparently result in a shift of some revenues from 1999 to 2000 and from 2000 to 2001. In accordance with SAB 101, revenues for 2000 will be $1.2 billion.

In parallel with releasing its second warning for the fourth quarter, ECI announced that it has completed its demerger into five independent companies: Innowave, cross connect, optics, voice compression, and ADSL. ECI announced that it will be recording a one-time charge of between $110 million to $130 million in respect to the splitup. The restructuring process into five companies plus ECI corporate took four months.

The separation of systems and companies, in conjunction with the quarter closing resulted in the under estimation of the shortfall by the individual companies and by corporate as a whole,'' said ECI president and CEO Doron Inbar, President and CEO. In spite of the shortfall in legacy DCME and SDH, demand for the Company's products remains strong as reflected in the book to bill ratio of 1.1, he added.

ECI will be filing its results for the fourth quarter and for 2000 on February 14.