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ONI beats earnings expectations

Optical equipment maker ONI Systems reports a lower-than-expected fourth-quarter loss, fueled by strong revenue growth.

    Optical equipment maker ONI Systems reported a lower-than-expected fourth-quarter loss Thursday, fueled by strong revenue growth.

    The San Jose, Calif.-based company reported a pro forma net loss of $11 million, or 9 cents a share, which compares with a pro forma net loss of $12.9 million, or 59 cents a share for the same quarter a year ago. Fourth-quarter revenue increased to $30.2 million from the previous quarter's $16.4 million and $1.3 million a year ago.

    Wall Street expected the company to lose 11 cents a share, the consensus estimate of nine analysts surveyed by First Call. Six analysts also estimated that ONI would post revenue of about $20 million for the quarter.

    "Generally, they had a strong quarter, and their outlook looks strong as well," said Raj Srikanth, a managing director at Deutsche Bank Alex. Brown.

    The company makes equipment for optical networks in mostly urban markets, which many industry observers believe will grow very rapidly.

    "The metro market is one of the fastest growing markets," said Srikanth. "Despite the concerns people have about the telecom sector, the metro market is really cranking."

    Analysts also concede that the industry might see a spending slowdown by telecommunication carriers, which could translate into less sales for equipment makers like ONI. But Credit Suisse First Boston analyst Jim Parmelee believes that even if there is a slowdown, carriers will still focus more of their spending on metropolitan networks than they have in the past.

    A recent study by the Dell'Oro Group released last month confirms this perception. In 2000, the metro market stood at about $383 million, and Dell'Oro predicts that it will balloon to $3.1 billion, an increase of more than 700 percent.

    Pro forma earnings exclude non-cash charges related to the amortization of stock compensation and goodwill.

    The company added that it expects revenue of $210 million to $220 million for fiscal year 2001 vs. current analysts' estimates of $179 million as surveyed by First Call. ONI also expects to report break-even earnings per share, excluding charges, in the fourth quarter of 2001.

    ONI says it will widen its customer base over the year to about 24 to 26 customers. That compares with the 16 customers ONI reported at the end of the recent fourth quarter.

    "We continue to see increasing momentum in our business," said Hugh Martin, CEO of ONI. "Demand for our products remains strong and we have seen no slow-down in our customers' projections for metro equipment deployment. Visibility into, at least, the next several quarters remains solid."