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Thursday, July 20, 2006

Unusual Activity: Avici Up Over 50%

Shares of Avici Systems (AVCI) are trading up over 50% pre-market at $8.54. It reported gross revenue for the quarter ended June 30, 2006 at $25.3 million, and it posted EPS of $0.58. This was one of those that would have normally seemed like a "who cares" report, but when you look at the consensus estimates where revenue expectations were only half this number and they were supposed to LOSE money it would make anyone scratch their head. Here is what the company said:

"Due to a surge and acceleration in demand this quarter's revenue and bottom line results have far exceeded our expectations and resulted in the company turning cash flow positive. We expect to continue to see strong revenue and bottom line results in 2006, but caution that the business conditions driving this increased demand can change significantly. As we have previously announced, we have restructured our business to be profitable at what we believe is a reasonable going forward revenue baseline over the near term in a multi-vendor environment, even though we expect that 2006 will substantially exceed those levels," said Bill Leighton, Chief Executive Officer.

Avici provides high-speed Internet infrastructure equipment to transmit high volumes of information across networks. As you have likely seen us report, stocks in this sector are going to be heroes and hosers as the major telecom players and cable providers have shrunk to a handful. This environment will create a wave "Good Hits & Bad Misses," and it is obvious that Avici falls in the Good Hits crowd for now. The company was also trading at only about 1.3 times book value before this report and had about 14% of its shares in the short interest.

Jon C. Ogg
July 20, 2006
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