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ONI's revenue numbers "good news"

The communications-equipment company reports second-quarter revenue that beats Wall Streets expectations and expects more revenue growth for the year.

Communications-equipment company ONI Systems reported second-quarter revenue that beat Wall Streets expectations and expects more revenue growth for the year.

The San Jose, Calif.-based company posted a loss of $6.7 million, or 5 cents a share, excluding charges, on revenue of $68.2 million. That compares with a net loss of $20 million, or 18 cents a share, on revenue of $9.5 million for the same quarter a year ago.

The quarter was in line with Wall Street expectations. Analysts anticipated a loss of 5 cents a share, according to a survey by First Call. However, ONI topped its own revenue forecast of between $50 million and $60 million and beat analysts' expectations of $56.1 million.

"It's good news for any company that can beat their numbers like that," said Jeff Lipton, an analyst at J.P. Morgan.

The company attributed its strong revenue to new customers as well as to repeat business from 19 of the 21 customers it signed at the end of the first quarter. ONI predicts it will have between 32 and 34 customers by the end of the year, up from previous predictions of between 28 and 30 customers.

The company counted 24 customers at the end of the quarter and $739 million in cash on hand.

ONI raised its revenue forecast for the third quarter to a range of between $75 million and $85 million, up from previous estimates of between $70 million and $80 million. The company also increased its full-year revenue estimate to between $275 million and $285 million, up from $245 million to $255 million.

The company still expects to post break-even results on a per-share basis for the fourth quarter, excluding charges, but added that it will make lower gross margins, or revenue minus costs divided by revenue.

"The pricing and lower gross margins is not good news," said Lipton, who added that during the conference call, ONI attributed the lower margins to the low-priced items it initially sells to new customers.

ONI expects margins to improve as customers buy higher-priced items, but the company also admitted that it is experiencing some pressure to cut prices.

ONI makes optical communications gear for metropolitan networks, which move data within urban areas, as opposed to long-haul networks, which run between cities.