) -- Shares of

Sycamore Networks


slumped Wednesday as poor quarterly results trumped the company's decision to make a hefty cash distribution.

Before the opening bell, Chelmsford, Mass.-based Sycamore reported a non-GAAP loss of $5.6 million, or 20 cents a share, for the three months ended Oct. 31, wider than both its year-ago equivalent loss of $3.2 million, or 11 cents a share, and five times worse than the average estimate of the three analysts polled by

Thomson Reuters

for a loss of 4 cents a share.

Revenue totaled $11.7 million for the company's fiscal first quarter, a sequential drop of nearly 50% from its fourth-quarter tally of $22.2 million, and well short of the consensus analysts' view of $17 million for the October-ended period.

"Our first quarter results reflect the fluctuations associated with the project-oriented nature of our bandwidth management business," said Daniel Smith, Sycamore's president and CEO in a statement. "We continue to make progress on many fronts, including IQstream, our mobile broadband optimization solution."

In the same press release, the company said its board has approved a special one-time cash dividend of $6.50 per share, payable on Dec. 22 to shareholders of record on Dec. 3.

The stock was crushed in the wake of news, losing $4.77, or 15.9%, to finish at $25.25. Volume of 1.85 million was roughly 7 times the issue's trailing three-month daily average of around 265,000. Year-to-date, the shares were up nearly 48% prior to the news.

Auriga USA

lowered its rating on Sycamore's stock to hold from buy and set a 12-month price target of $25. For its part, the firm was less disturbed by the company's numbers than it was by IQStream's progress.

"While the decline in legacy revenues was mildly disappointing, more troublesome was management's commentary suggesting that acceptance of IQstream by the global carrier community would likely be pushed out by several months as the company introduced an enhanced feature set to make the product more attractive to carriers," Auriga said in its note to clients.

The firm continued: "We are moving to the sidelines and downgrading our rating to a Hold not only because of this delay but also because of our growing concerns regarding carrier spending delays worldwide, which is likely to further increase the time for product acceptance on new projects such as IQstream. "

Auriga also said it expects the macroeconomic problems in Europe could "stretch out" the decision-making process for new products like IQstream, which Sycamore said will be generally available in the first calendar quarter of 2011, a "slight push-out" from previous projections.

The firm laid out two scenarios where its view of Sycamore's stock would improve. It would either want to see signs that carrier acceptance of IQstream is getting closer, or else the stock's valuation sinks down to near cash, which it estimates will be around $16 per share following the cash distribution.


Written by Michael Baron in New York.

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