Ciena Corp. saw its shares fall 6 percent yesterday after the Linthicum-based networking company said it would take a fourth-quarter charge against its earnings because a British customer that owes it $28.2 million filed for bankruptcy protection.
Ciena learned late Monday that an administrative order had been issued against iaxis Ltd., one of the optical networking giant's 40 customers. In the United Kingdom, an administrative order is the equivalent of filing for bankruptcy protection, said Steven Pearson, an insolvency expert appointed by a London court to manage iaxis' assets.
The iaxis news poured some rain on Ciena's remarkable parade this year. Shares soared last month as Ciena's third-quarter estimates beat analysts' expectations, with revenue jumping 81 percent over the 1999 third quarter. Yesterday, Ciena's shares lost $13.7969 to close at $216.3281.
The bankruptcy wasn't expected, but Ciena had indicated in its last quarterly statement problems with a delinquent account, which Ciena spokesman Aaron Graham confirmed yesterday was iaxis.
Ciena isn't sure what the exact charge will be because iaxis hasn't indicated how much, if any, it can repay. The worst case, Graham said, would be a charge of 13 cents a share, or 6 cents on a post-split basis. Ciena announced a 2-for-1 stock split payable Sept. 18.
iaxis' debts represented about 13 percent of Ciena's outstanding accounts receivables. But, Graham said, Ciena had no projections of future revenue from iaxis, and all its other customer accounts were in order. Ciena projects revenue of $280 million for the fourth quarter, an increase of 20 percent over the $233.3 million booked in the third quarter.
"From what we can tell so far, this is strictly an isolated incident," Graham said. "Really, in the big picture, it's not an issue for us."
iaxis, formed in 1998, began buying optical transport systems from Ciena in 1999, which it used to beam information at high speeds through its network. iaxis invested $300 million in its fiber-optic network, which covers all of Europe. Graham wouldn't say how much equipment iaxis bought, or exactly when they stopped paying. But, he said, "they have paid us more than they owe us" in the year the companies have done business.
Pearson, who works for PricewaterhouseCoopers in London, said the goal is to sell iaxis' assets and satisfy its creditors. Ciena is not iaxis' largest creditor, and Pearson said he's not sure in what order iaxis will settle up its bills.
"What this means for Ciena, I can't say," he added.
Technology companies such as Ciena typically book revenue before they have cash in hand, and Graham said the iaxis problem won't change that. Jeffrey K. Lipton, a research analyst with Chase H&Q; in San Francisco, said Ciena's bookings are "standard industry practice" and agreed iaxis' payment problems are an isolated, but not surprising, business consequence.
Ciena is "not going to change the way they account for revenue," Lipton said.