Piper Jaffray: Orckit won't be able to repeat Q4 performance in the coming year - TheStreet

For the first time since going public,

Orckit Communications

(Nasdaq:ORCT) beat analyst forecasts for the first time with revenues of $48.1 million in Q4 of 2000. This is 31% higher than its Q4 in 1999, and 47% above the previous quarter. But investment bank Piper Jaffray does not believe the Israeli company can repeat its fourth-quarter performance in the coming year.

Piper Jaffray Nessuah Zannex wrote last week that Orckit's happy surprise for investors does not necessarily mean that the company is entering a new and better era, vis a vis its growth and results.

Based on the weak access market, analyst Robert Goldman lowered his predictions for 2001. As telcos cut spending, Goldman sees Orckit ending 2001 on revenue of $151 million, and a loss of $1.39 per share. Before the Q4 results, he had been predicting revenue of $200 million. But he finds cheer in Orckit's cash situation. The company is sitting on $101 million, mostly from a $120 million bond issue during 2000.

Orckit missed certain opportunities when access was all the rage, Goldman says, adding that establishing its subsidiary Corrigent was done in order not to miss the opportunities of metro.

Added value via Corrigent

In the last quarter of 1999, Orckit announced a new subsidiary, Corrigent Systems, which specializes in telecom transport solutions capable of supporting high bandwidth data and voice services in metropolitan-area telecommunications networks. Its product is still in early development.

On January 31, 2001, Orckit is to hold a shareholders assembly to finalize details concerning Corrigent. Orckit President Izhak Tamir says that Orckit hopes to expand its product line and target new markets in the growing access/metro market with the help of Corrigent's product.

Corrigent is not Orckit's first effort to provide added value to its shareholders. In June of 2000, Orckit split off its chip unit Tioga Technologies (Nasdaq:TIGA) by distributing dividends to its shareholders. But Orckit does not plan to spin off Corrigent on the Nasdaq any time soon.

On January 25, Orckit's market value came to just $67 million, and its shares were trading at $3 or less. On the day Tioga was split off from Orckit, the stocks of both companies traded at $16 per share.

In addition, Orckit announced on January 25 that its director Meir Barel is to retire. Barel headed the Star venture capital fund and had been an Orckit board member since 1995. Tamir did not say who would be replacing Barel. But Chemmy Peres, managing director and founder of the

Polaris Venture Capital

is also an Orckit board member, and says he will probably be able to help the company recruit investors for its new startup venture.

Fourth-quarter results

Wall Street had expected revenues to reach only $45 million, a sum that the firm surpassed by 6.8%. In 2000, the company's sales came to $130.3 million, 47% above its 1999 figures.

Net profit for the fourth quarter is still in the red, as the company posted a loss of 20 cents per share or $4.5 million. The average Wall Street forecast called for a 20 cent loss per share in Q4. But Orckit failed to beat more optimistic predictions. Shaul Eyal and Dan Zuk of CIBC World Markets Equity Research had hoped the company's loss per share would only reach 15 cents.

In Q4 of 1999, Orckit had posted a $7.7 million loss, or a 39 cent per share drop. In Q3 of 2000, the company had posted a $7.8 million loss, or a 35 cent drop per share. These losses exclude non-cash one-time expenses and goodwill amortization, which if included in Q4 of 2000 would mean a net loss of $7.2 million or 32 cents per share.

The company says there's high demand for its DSLAM

Orckit develops DSL-technology based digital modems that enable fast communication on an existing copper wire line infrastructure. The company's products are targeted towards communication firms and Internet providers looking for fast Web access. Orckit's main growth today is generated by ADSL modems.

Tamir said that Orckit's DSLAM had generated record sales in the fourth quarter and that the firm has so far sold 500,000 ADSL lines. Tamir said he is also encouraged by Orckit's strong presence in the North American market.