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Sycamore networks, customers on a rough ride

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CIOL Bureau
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Tim McLaughlin

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BOSTON: Last year when optical networking was hot, Sycamore Networks Inc.'s

market value rocketed to $24 billion on the strength of a few customers and a

product line largely rejected by industry heavyweights. But that's not good

enough for Wall Street anymore.

Sycamore's failure to crack the telecom big leagues has left the firm

clinging to a small roster of customers that are under siege. Meanwhile,

Sycamore's market capitalization has dwindled to about $2.2 billion. Sycamore's

revenue outlook relies heavily on three customers that each accounted for 10 per

cent or more of the firm's fiscal third-quarter revenue. Sycamore shares have

lost 93 per cent of their value in the past year.

360networks Inc., a key Sycamore customer, is mulling bankruptcy while

scaling back plans to build a fiber-optic undersea telecommunications network in

Asia. Strapped of cash, the Canadian firm is stranded in penny stock territory.

Sycamore's first and most significant customer, Williams Communications Group

Inc., recently lowered it 2001 revenue forecast by $100 million, blaming lost

business due to Winstar Communications Inc.'s bankruptcy filing.

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Williams has accounted for a majority of Sycamore's revenue during the past

two years, but Wall Street analysts said 360networks had secured an increasing

portion of its business. Besides relying heavily on a few customers, Sycamore

has experienced product setbacks, hampering its chances of winning significant

amounts of business from a Baby Bell or a long-distance carrier such as AT&T

Corp.

All of this bad news has steam-rolled the financial outlook at Sycamore. It

has warned that it is likely to miss its 2001 revenue forecast by more than $200

million and fall well short of its 2002 fiscal year target of producing more

than $1 billion in revenue.

"They will make it through this rocky time because they have heavy

cash," said Todd Koffman, an analyst at Raymond James & Co.

"Ultimately, they'll have to wait for the next investment cycle, which

could be another nine to 18 months away."

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Sycamore spokesman Richard William said, the company is focused on winning

business from incumbent carriers or emerging carriers that are well funded.

"We have $1.3 billion in the bank," Williams said. The hoard is the

result of two public offerings that raised $1.5 billion when Sycamore's stock

was flying high.

Wit SoundView analyst Kevin Slocum said money is only part of the answer to

Sycamore's woes. He said Sycamore's SN16000 switch, which allows

telecommunications companies to break their high-capacity pipelines into smaller

chunks, needs to become a market place alternative to the switch made by Ciena

Corp.

Sycamore's five customers, include Vodafone Group Plc and BellSouth Corp.

"If they could become a second supplier, there's an opportunity to build a

meaningful business there," Slocum said.

(C) Reuters Limited 2001

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