As Avici Systems (AVCI) continues through its current tough times, Zacks senior technology analyst Steve Biggs, CFA retains his Sell rating on the shares. We found out why by looking into his most recent report on the company:
Following a review of strategic alternatives, Avici Systems has decided to exit the router business that currently contributes over 90% of revenue and focus on its new software initiative, Soapstone Networks. We believe that the company had limited alternatives and was not an attractive acquisition target given the state of its router business.
The company will distribute approximately $28 million to shareholders in the form of a special $2 dividend. We estimate that in six months time, AVCI will have $3/share in cash and that Soapstone is worth about $1 per share, resulting in a $4 price target and Sell rating.
In addition, Avici is heavily dependent on one major customer, AT&T (T), for much of its sales. AT&T is currently working on its merger with BellSouth, and, as such, has not updated its capital expenditure forecast for the near term. The software market that Avici is entering is thus far unproven and the company will have no direct public competitors. Although this gives the company an opportunity to become a market leader that it never was in the equipment business, there is considerable risk that it may not be successful.
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