March 24, 2004 Notes from reading Current Analysis Report on Broadwing (BCI)
Current Analysis is a subscription service, which is available at http://www.currentanalysis.com .
1. Mentions that BCI enterprise competitors are AT&T, MCI, Sprint, Verizon and SBC. Mentions that these competitors should stress their global reach when working with potential customers.
2. Mentions that BCI wholesale competitors are Level 3, Qwest, Wiltel and Global Crossing.
3. Claims that BCI differentiates itself from competitors on its competitive pricing, high-quality customer service and ability to provision rapidly.
4. Mentions that BCI has an initiative, called “Wedge” Sales Strategy. Approach is based on winning a small RFP with a large enterprise customer, with the goal of increasing the number of services to these customers. Largest customers are Bank of America, CNN, Avon and Mazda. BCI currently has less than 1% of enterprise market. Mentions that Tier 1 competitors should stress that they don’t need a “wedge” strategy, since they already have proven themselves as full service providers.
5. BCI targets enterprise customers with 20 or more offices around the country. BCI is beginning its foray into mid-market enterprises. These companies are ones with 100 – 10000 employees and average monthly communications spending of at least $20,000.
6. Wholesale carriers are claimed to be 1/3 of BCI revenues. Mentions that BCI has less than 1% of wholesale carrier market, although it sells to an estimated 80% of North American Service Providers.
7. Thinks the Focal acquisition will reduce its reliance on incumbent LEC’s for local fiber connectivity.
8. Mentions that Focal metro fiber exists in nine of the largest US markets, including New York, Dallas, San Francisco, Los Angeles, Philadelphia, Detroit, Chicago, Seattle and Washington DC.
9. Current Analysis lists BCI with a positive perspective in ATM, Data Network Services, Frame Relay, Local exchange and Private Lines. All other markets are listed as “neutral”. Labels BCI as a 2nd tier carrier, with an emerging status in IP-VPN and Long Distance. All other markets are listed as “established”. Current Analysis calls the momentum and Vision for all markets to be “neutral”, except for Data Network Services, which is called “Neutral/Positive” and Private Lines, which are given the category of “Positive”.
10. Feels the Covad relationship (BCI being a Covad DSL reseller) helps BCI achieve its goal of increasing its Metro Access. Of course, Focal acquisition helps BCI achieve that same goal.
11. Claims that even with Focal acquisition that BCI will have to invest in more metro fiber. Feels that if BCI does not invest in metro fiber , they will suffer from higher costs and slower provisioning times. Mentions that national competitors should point out that they don’t need to buy metro assets, as they are already in place.
12. Thinks BCI needs to grow market share quickly and attain some operational profitability.
13. Does mention that “Broadwing does have a top notch optical network, solid core products and a dedicated customer list.”
14. Mentions that BCI’s Multi Connect has become one of BCI’s most successful services. This is a point to multi point private line service, which provides enterprises with a service that looks and acts like a private line, but at a lower price.
15. Mentions that large enterprises should consider BCI in their RFP’s, because of it’s high quality network, customer service and lower prices. Also discusses that carriers should consider selecting BCI for diversification and redundancy.
March 19, 2004 Notes from reading Current Analysis Report on Focal Communications
Current Analysis is a subscription service, which is available at http://www.currentanalysis.com.
1. Focal emerged from bankruptcy in July 2003. Focal became a private company. Released unaudited 3Q03 revenues of $76.9M. Projects F2003 revenue of $320M.
2. 3Q03 revenues were nearly evenly split, between communication services (slightly larger) and wholesale sales (other carriers and ISPs).
3. Wholesale business has 321,000 lines, down from 335,000 following bankruptcy emergence. Communications services, holding steady with 225,000 lines.
4. Claims to sell services to half of Fortune 100 companies. New customers are Microsoft and Airborne Express.
5. Current Analysis generally lists Focal with a neutral perspective, 2nd tier carrier, emerging status with a neutral vision and momentum.
6. Feels future in the Broadwing network is a good fit for both companies.
7. Current Analysis praises its diversified offering of voice services. More vast and comprehensive offerings over other CLECs. Claims services and customer service reputation, being “first-rate”.
8. Operating expenses are generally low, since it owns most of its own network infrastructure.
March 10, 2004 Notes from reading Current Analysis Report on Corvis/Focal proposed merger
1. Focal sells voice and data, mostly to midsize enterprises in 23 US markets and also serves the carrier market.
2. They see the deal as “slightly positive”, because they like the fit of focal with the ultra long haul market. Says Broadwing (BCI) gains greater local access and more sophisticated voice products .
3. Says it bodes well for “access forward” initiative (which I misquoted here and frank corrected me last week (thanks frank !!!))
4. Focal reduces long haul costs and gains sophisticated data services.
5. gives Corvis greater diversity.
6. says footprints of the 23 US markets are complimentary.
7. says Broadwing is interested in Focal’s voice presence in rolling out VOIP portfolio later in year.
8. says focal has 9 metro rings.
9. Broadwing will save money on access, and also cut Focal’s operating costs , by carrying focal on BCI’s own long haul network.
10. Focal has class 5 switches, and Broadwing has class 4, hence says Broadwing does not have to now upgrade to class 5.
11. sees cross sell, between BCI data and Focal voice .
12. says BCI can now push into its goal of midsize business, which is focals “sweet spot”.
13. BCI gains Focal’s 4000 customers.
14. Claims that BCI has less than 1% of large enterprise market and less than 1% of global carrier market.
November 25, 2003 10:00 PM
Just some notes from S-3/A filing
Broadwing faces significant competition from companies such as AT&T Corp., MCI, Sprint Corporation, Level 3 Communications, Inc., Qwest Communications International Inc., and several emerging and recapitalized competitors. The significant capacity of these competitors could result in decreasing prices even if the demand for higher-bandwidth services increases. In addition, some competitors are experiencing financial difficulties or are in bankruptcy reorganization. Competitors in financial distress or competitors emerging from bankruptcy with lower cost capital structures and substantial excess fiber capacity in most markets could exacerbate downward pricing pressure in the telecommunications industry. ”
” Revenue from Broadwing’s ten largest customers accounted for approximately 24% of total revenue since the acquisition. One of these ten largest customers representing 2% of Broadwing revenues are in Chapter 11 bankruptcy proceedings. In addition, a significant portion of Broadband’s revenue is derived from telecommunications carriers. Revenue from telecommunications carriers accounted for 41% of Broadwing’s total revenue in the third quarter of 2003. Most of Broadwing’s arrangements with large customers do not provide Broadwing with guarantees that customer usage will be maintained at current levels. Industry pressures have caused telecommunications carriers to look aggressively for ways to cut costs which has resulted in reduced demand and reduced prices. In addition, construction of their own facilities by certain Broadwing’s customers, construction of additional facilities by competitors or further consolidation in the telecommunications industry involving Broadwing’s customers could lead those customers to reduce or cease their use of Broadwing’s network. To the extent these large customers cease to employ Broadwing’s network to deliver their services, or cannot pay outstanding accounts receivable balances, our business, financial condition and results of operations could be materially adversely affected. ”
Some notes from 10-Q
” Revenue from Broadwing’s ten largest customers accounted for approximately 21% of total revenue since the acquisition. One of these ten largest customers, representing 1% of Broadwing revenues, is in Chapter 11 bankruptcy proceedings. In addition, a significant portion of Broadwing’s revenue is derived from telecommunications carriers. Revenue from telecommunications carriers accounted for 41% of total revenue since the acquisition date. ”
” Revenue from Broadwing’s ten largest customers accounted for approximately 21% of total revenue since the acquisition. One of these ten largest customers, representing 1% of Broadwing revenues, is in Chapter 11 bankruptcy proceedings. In addition, a significant portion of Broadwing’s revenue is derived from telecommunications carriers. Revenue from telecommunications carriers accounted for 41% of total revenue in the third quarter. Most of Broadwing’s arrangements with large customers do not provide Broadwing with guarantees that customer usage will be maintained at current levels. Industry pressures have caused telecommunications carriers to look aggressively for ways to cut costs which has resulted in reduced demand and reduced prices. In addition, construction of their own facilities by certain Broadwing’s customers, construction of additional facilities by competitors or further consolidation in the telecommunications industry involving Broadwing’s customers could lead such customers to reduce or cease their use of Broadwing’s network. To the extent these large customers cease to employ Broadwing’s network to deliver their services, or cannot pay outstanding accounts receivable balances, we could experience a material adverse impact on our business, financial condition and results of operations. ”
November 10, 2003 10:00 PM
Current analysis did a report today on Corvis. They basically think that Corvis dropped the ball big time. They sited all the reasons we already know. They blame mismanagement, bad decisions and Dorsal acquisition for wasting resources. The article mentions that Cincinatti Bell is a customer going forward for Broadwing. They list Optical Switching Systems as Negative, and WAN DWDM and Aggregate ratings as “very negative”. They label Corvis as an emerging 2nd tier with a “negative” vision. they site poor use of capitalization. No surprise, they expect Broadwing to be sole focus going forward. They reel that Sycamore and CIENA should emphasize Corvis deficits as they compete for new business.
Feels that corvis should publicly state their intended future direction as they transform from an optical systems company to a service provider.
This really is nothing new to us, other than having the Current Analysis take. Current Analysis has been negative on Corvis ever since the Broadwing acquisition.
September 23, 2003 11:00 AM
The following is copied with permission from a poster at the Gilder bulletin boards ( http://www.gildertech.com ) . It was quite interesting to read and I am putting it here for future reference. This is a confusing time for Corvis, hence I find ideas such as this useful.
1. Cincinnati Bell was in violation of some of its debt covenants. It needed to raise cash quickly to avoid becoming another Global Crossing. So, it sold Broadwing for pennies on the dollar before it had to file bankruptcy. Thereafter, it issued new bonds and refinanced its debt at lower interest rates and different debt to equity covenants.
2. Only the GIG-BE procurers (Hedley Lamar & Associates) know why they like Ciena over Corvis. Obviously, they do not yet recognize the “genius” of the all optical paradigm.
3. Williams went bankrupt. Corvis bought Broadwing. The others went into the ether without a net.
4. Verizon and MCI have issued requests for proposals. Other than them, Broadwing will be Corvis’ largest customer. It’s called the theory of circular cash flow management. Hopefully, there will still be vacant chairs at Corvis when the music stops.
5. It sounds like there is no optical long haul business at the moment. There might be some next year or the year after next. Don’t hold your breath waiting for it.
1. gg believes that CORV possesses the best technology for long haul optical networks. He also believes that demand for bandwidth will increase significantly over the coming years as more and more people become connected to the internet and demand services that require lots more bandwidth than is available today. The combination of these factors will compel carriers to add CORV technology to their networks because it is the best.
2. gg also believes that the greatly underutilized Broadwing network will receive additional customers and revenues as this demand increases. That is kind of the WMO’s reasoning why CORV is a “buy”. IP demand will increase on Broadwing and therefore lead to a more profitable set of products and services that will drive its top and bottom lines upwards.
3. The combination of #’s 1 and 2 above, gg believes, will make him rich.
3. No one is asserting that Broadwing will be profitable in six months. CORV is claiming that Broadwing may have positive EBITDA and may not be cash flow negative in that time frame. Those are not the same thing as being profitable.
4. Don’t know if CORV “saved” CBB from bankruptcy. The Broadwing sale certainly made CBB sufficiently attractive to lenders that they agreed voluntarily to restructure CBB’s debt and buy a whole new set of bonds. CBB wasn’t stupid. That’s why it sold Broadwing.
September 21, 2003 11:00 AM
1. Corvis looking like it did not get selected as the primary supplier for Gigbe was a ruff one. See this article from Lightreading.com . Keep in mind that the article has not yet been confirmed. Corvis announced further layoffs after the article, and most analysts and industry sources believe that the article was correct. I don’t think anyone here knows exactly what happened to Corvis and why they were not selected. I hope that the reason Corvis doesn’t look like it will be selected for Gigbe is based on price and sacrifice of the government network. I am hoping (yet not convinced) that in deployment, Corvis ON is a quality solution. It is often argued that Corvis offers the only all optical solution, yet we do not have the customers to give us the experience to trust all that is written. At this point, it is next to impossible for us to analyze Corvis. The next CC is 10/30/03, that is a long time away. We don’t know if Corvis is going to exit or hibernate from the equipment business. We don’t know if Broadwing will begin to generate positive cash flows. We don’t know if the buyout of Broadwing will ultimately become successful. Of course all these questions could lead to handsome rewards. Yet, Corvis has become a riskier investment as we see it, only because of the lack of information, which prevents the dissemination of data. If you recall prior Corvis guidance gave us little solid forward info anyway, for example Dorsal and other hopeful customers. I’m not complaining, as long as Corvis acts as a fiduciary to their employees and shareholders, that is all you can ask for.
2. I am not technologically oriented, yet the corvis model seems logical. George Gilder still believes in the vision, and I think he believes the vision will be successful. I look forward to more of his Gigbe discussions, but I suspect he will continue to say that the government has got it wrong, yet again.
3. We trimmed our portfolio last week. We trimmed it only to reallocate our position since the run up and the news of Gigbe (still not officially confirmed). Interesting thing is that at last statement from broker on August 31, 2003, you have a price of $1.37, the run up was in September, hence today’s price of 1.48 is still 7.50 % higher than last statement.
Please read our Corvis section of our web page, and our disclaimer on investing in Corvis . We are constantly researching our investment. At this point our Corvis holding is quite dynamic. What we mean by that, is we may exit or increase our position quickly based on any new information we gather.
August 5, 2003 9:00 PM
Smith Barney wrote a report on Corvis today. Here are my notes regarding the report.
“Due to cash burn concerns and lack
of significant deployed base, we think the risks of deploying Corvis exceed
any technological benefits and do not foresee the company winning this deal.”
“We continue to rate Corvis Underperform and the industry Marketweight.”
SSB price target is $0.50, yet price target was $24.00 on 9/25/00
not that it matters, but SSB feels the GigBe portion that Corvis would be eligible for would be in the $125 – 130 mil range. $80 mil in 2004 and 45 – 50 in 2005. They feel the other two candidates are Ciena and Lucent. they feel that ” lack of meaningful reference accounts” , will prevent the Corvis win. Ultimately, they think politics will rule, and that Lucent has better connections and will create more jobs, and expects LU to win the OTS bid.
I have been reading Henderson for years. I like his work. I have spoken with him on several occasions and I like him as well. With that said, some quick poorly written thoughts.
1. he has been beat up badly and like Corvis and lucent , he is a victim of the sector. We all act a bit differently after we are beaten up, especially for Alex as it has been the last 3 years. Hence his judgment might be a bit critical.
2. I met and had a long talk with an un named telecom analyst during 2001 and we discussed both Broadwing (a customer) and Corvis. At that time, he/she felt that Corvis would not be a survivor. He/She felt the customer base and the customer quality was too weak. In retrospect, he/she was pretty accurate as they all have fallen to predators (i.e. Corvis buying BRW). (nothing to do with SSB, but I wrote it and will keep it).
3. Henderson has good points on his fear of Corvis. lack of customers, cash burn, thinks BRW structure will be more expensive then Corvis anticipates, which he thinks could lead to dilution or financing, sometime , even possibly this year, revenues way down, cash burn. Lots of concerns for sure. Yet I imagine that the reason that the strong money longs (different than the weak) are here because of a chance that the Huber vision might exist. Perhaps the new vision will be as revolutionary as Western Union and ATT to the birth of the telecommunications industry. Alex puts a $0.50 tag on Corvis. Yet, I think if you were having a beer with him, he would flat out tell you (unless he was privy to info that I don’t have )that the Huber vision is possible, just real risky. Hence, I think he should just say to his staff in a report , that he don’t like the stock. But putting a price target as well might dilute his own currency to the readers and users of his report.
4. nowhere in the report did he really give any admiration to Corvis. So, perhaps he has a bunch of reasons for that. One possibility being, perhaps he has fair research from competent industry sources which he interprets that Corvis has nothing going for them. Another possibility being that he is angry over their lack of guidance. Angry over the inability to model because of an immaterial time span of information, hence perhaps his emotions are being written in the report, which theoretically could lead to an error in judgment..
5. interesting that he called ATT, Sprint and level 3 accounts, along with the Feds. I never considered them as part of the Corvis picture. Interesting that was mentioned.
6. he mentions typical report risks. basic telecom weakness. also he says that an industry upswing or Gigbe win, might cause a price “upside to our target”. Perhaps the report should mention that the risk of not owning Corvis when they have the Feds as a current customer and some others, as well as (assuming he didn’t make an error) other tier 1 Service Providers such as ATT , Sprint and Level3( or is that tier2).
This is how George Gilder from http://www.gildertech.com (subscription required) commented on the above.
” Either you believe in Huber’s all optical vision or you don’t. Measured in bits per second per fiber times miles between regenerators, Corvis has achieved a 16 thousandfold advance over the regnant technology since 1996 when they launched their first product. But they are not a significant incremental player. You have to deploy the entire kit and kaboodle. That is why the Broadwing purchase was a brilliant even if desperate act of vertical integration. Williams and Qwest, mentioned elsewhere, purchased only a small part of the Corvis system.
To believe in Corvis, you also have to grasp that real broadband will be deployed in the US over the next several years.
If you think we will perennially lag behind Korea and China and that traffic will remain so sluggish that hugely less efficient optoelectronic solutions can suffice, you should not buy Corvis.
I do not believe that drastically inferior technologies can prevail. But there are many political pygmies out there who actively resent superior human accomplishment.
March 20, 2003 12:00 PM
George Gilder commented last night that Corvis will stay alive long enough to lead the next wave of WDM. He feels they will make ” big bucks ” from the bold contrarian purchase of Broadwing Broadband.
March 18, 2003 10:00 PM ( these are notes that were taken prior to February 27, 2003 )
Notes on a Conference with Corvis (Prior to Broadwing purchase)
Corvis claims to have completed a successful undersea field trial. Claims there are some ” very successful field trials going on.” Trials are going on at all of the ” big 3 carriers “. Mentioned that all of the first major revenues were with 2nd and 3rd tier carriers, whereas current trials are with Tier 1 carriers. Claimed that there was a lot of RFI and RFP Activity, but still no visibility.
February 27, 2003 10:00 PM
- Further discussion on the Broadwing purchase
Most of the research we have read so far regarding this transaction has been negative towards Corvis. Much of the criticism is that Corvis has released next to no financial or strategic information on this purchase. This is a material transaction (assuming that Corvis cash is being used) considering that the purchase is for $ 129M in cash and that Corvis has a little over $ 500M in cash. The investment community would like to see Corvis disclose the terms and strategy sooner than later. Corvis will disclose all with it’s 10-K filing, which should be filed some time in March. We would like to see Corvis issue an immediate statement regarding this transaction. The transaction will be required to be disclosed in the upcoming 10-K.
We have come across the following in our research into this transaction. Keep in mind that the research has been slim since so little has been written or disclosed so far.
A. It is speculated that Corvis has entered into this transaction so Corvis can continue to display its up and running all optical network, which is installed in Broadwing. Corvis prides itself on a cost effective and quick provisioned network. Corvis may figure that it would not look promising if one of the only company’s with a Corvis installed network, went out of business.
B. It has also been speculated that Corvis did not want to see the possibility of its equipment at Broadwing show up in the after market at bargain basement pricing. Corvis would not want to effectively compete against its own equipment.
C. There is concern that the all optical focus of Corvis will be diluted by this purchase. There is further concern that Corvis is spending its remaining cash in areas other than its core product development. We have read that this transaction limits Corvis from focusing on entering the Metro business. We disagree with this criticism, as Corvis has made it quite clear that the metro is already saturated and that they have no desire to enter that arena, other than for reasons of interoperability.
D. There is concern that although Corvis has claimed this transaction to be ” an attractive investment that offers promising returns and financial diversification “, that it is actually a poor use of limited and wasting financial resources. The concern is that what is left of the billions already spent, should be used on core product development and maintenance as opposed to purchasing a service provider.
E. Corvis has recently applauded its cash preservation strategies. This transaction has the potential to materially and dangerously increase the cash burn rate.
F. It is our understanding that Broadwing has 1000 enterprise customers, spread over 137 different areas in the USA. Broadwing averages under 8 customers per market. Some of Broadwing’s larger customers are Bank of America, Blue Cross Blue Shield , Mazda and Whole Foods Markets.
G. Why hasn’t Corvis been more vocal in their announcement of the transaction. There has been no SEC filing by Corvis. There has been no mention of the transaction on the Corvis website. Corvis claims that this is an investment of diversification, yet they have given no details of the strategy. The question arises as to why Corvis is not disclosing such an event, especially since the “secret ” will need to be disclosed within the month of March anyway. Perhaps Corvis is using the silence as a strategy. Corvis came under criticism for the purchase of Dorsal. The criticism was not without merit and speculation, although Corvis claims it was completely arms length. In our analysis of the Dorsal deal we did see spots of flawed analysis by Corvis and the ” independent “valuation assumptions . We would like to see a Corvis response to the Broadwing transaction. Even if Corvis said that for strategic , security and competitive reasons the details and strategy were being withheld.
H. Broadwing has been one of only a few customers during Corvis’ short history . Broadwing has been responsible for over 50 % of Corvis’ lifetime revenues. In June 2000, Corvis sold 372,533 shares of Series H convertible preferred stock to Broadwing Communications in a private placement transaction for an aggregate purchase price of $30 million. During January and February 2001, Broadwing sold 2.4 million Corvis shares. we feel that quick disclosure and explanation is necessary by Corvis. This is based on the history of Broadwing, the concentration of revenues and the history of related party transactions at Corvis ( click here for a timeline of the history).
February 27, 2003 11:00 AM
Will Corvis Buy Broadwing’s Broadband Business
Broadwing ( formerly Cincinnati Bell ) announced that it will be selling its Broadband unit for $ 129M to a joint venture (CIII Communications), Corvis and a venture capital firm. The selling price was below what many thought the unit would sell for. We have seen expectations that the sale was expected to be $240M. We are still not familiar with the particulars of this deal, nor have we formulated an opinion whether this is Corvis positive or negative. We do not know the intentions of Corvis at this time. Broadwing is one of Corvis’ few customers.
“We believe this is an attractive investment that offers promising returns and financial diversification,” said Lynn Anderson, Senior Vice President, Chief Financial Officer and Treasurer, Corvis Corporation. “Corvis offers industry-leading, next-generation optical networking solutions to global carriers.”
“We know the advantages of the network–reducing operating costs and allowing service providers to turn up services very quickly,” said a Corvis spokesman. “That helped in our decision-making process. We know what the network can do.”
George Gilder wrote the following regarding the news, ” Corvis is responding to the Clayton Christensen insights on integration and modularity. At a time of rapid technological change, integration is imperative. There is no time to standardize all the interfaces of the system, as Ciena and the others are trying to do in order to please their motley crew of hobbled BOC and lame-distance customers. Corvis is taking charge, and I believe they will engender upside surprises through their boldness. ”
George was also questioned on his bulletin boards ( click here to see the subscription only site ) whether he would still be buying Corvis. Keep in mind as you read the answer , that had you followed Gilder’s picks over the last 3 years that you would be essentially bankrupt. His picks included Global Crossing, Exodus Communications, Avanex and Corvis. With that said, I find Gilders writings to be incredibly visionary and non investment appropriate. To his credit, the entire telecosm has crashed and basically most investments in the telecosm over the last 3 years would have produced losses in excess of 80 %. With that said , here is what George said about any current investment in Corvis.
” Yes, I would still buy Corvis, if anything with greater enthusiasm than before, since they are pursuing a bold strategy of expansion rather than waiting around for the industry to turn up again. I believe that they will be able to win any price war for long distance data transmission and that their undersea capabilities will prove valuable. All of telecom is in a paralyzing slump, with a thousand bankruptcies and an renewal of regulation. Everything is down. But the service is indispensable to our economy and the world’s. ”
The following are excerpts from an article from Telephony Online. Click here to read the article.
“Dave Dunphy, principal telecom infrastructure analyst with Current Analysis, was skeptical of Corvis’s description. “If I wanted to ‘diversify,’ I wouldn’t do it by buying one of my customers,” he said, adding, “I don’t think it’s a good investment [for Corvis].”
For Corvis, which has had difficulty finding new customers, the deal was more likely a way to keep afloat a customer whose network had become a showcase for $200 million worth of Corvis products, Dunphy said. The move also keeps that gear from entering the used equipment market, where it might interfere with Corvis’s current sales efforts, he said.
Even in its role as investor, it’s unclear what future business Corvis can expect from the new Broadwing. A Cequel III spokesman wouldn’t comment on any ambitions to expand the network in the future, which already reaches “over 90% of major cities,” according to Broadwing’s Web site. However, a Cequel III spokesperson said the new venture, headed by Charter Communication founder Jerry Kent, would be “interested in working with the cable sector,” which could conceivably introduce cable clients to Corvis. ”
February 22, 2003 9:00 AM
A story was written on http://www.lightreading.com regarding the posting of sensitive information on the internet by a former Corvis employee. The article is located here . Below is the employees response, which was placed on the lightreading message boards. I found this incredibly informative and have placed the information here as a future reference and also in the event that the post gets removed from http://www.lightreading.com . I have read the ex-employees work for over two years and have always found his work to be genuine, intelligent and generally unbiased. My opinion of the poster is merely an opinion of mine and by no means should that opinion be relied upon in helping you formulate your Corvis investment decision.
Here is his unedited post
” I feel that I should clarify or emphasize a few things;
1. I really don’t think that I, or the events of my personal life, really constitute a story. I’m not that important. The real story should be about (as Phil mentioned) whether this has happened to others and the boundaries of individual rights versus responsibility to one’s employer in the expression of opinion, particularly in light of employees simultaneously being stockholders. I strongly encourage any further discussion on this story to follow that direction.
2. I want to express as strongly as I can that I do not view myself as an egregiously wronged person or some kind of martyr. In a number of posts of mine since my departure from Corvis, I have never written a word of personal invective toward Jim Bannantine nor do I harbor any resentment toward him for the outcome of the events in this story. I think that he pulled the trigger on me too fast and without sufficient consideration of the totality of my contributions and dedication to Corvis anc that there were other possible and justifiable outcomes that would have resulted in my continued employment with Corvis….but this is just my opinion and by definition cannot be objective. On the other hand, although I don’t agree with the outcome, I certainly can understand Jim’s view of these events and I am certainly aware, admit to, and deeply regret very real transgressions on my part related to the degree of personal invective in my later criticism of Dave. I also deeply regret that I caused anyone at Corvis to feel that I violated their trust or hurt their chances for future success. I still admire and respect the vast majority of those that I worked for and with at Corvis and the fact that I am not longer associated with them is my personal loss. I think that one’s view must take into account that old legal rule…..”But for….”. In other words, BUT FOR my own actions I would probably still be employed. I do not dispute this and if I had to do it over, I would do it differently. On the other hand, I am the one who has paid the very real and ongoing price for my actions and don’t feel that I need to hide in shame either. I don’t believe that there are any purely good or bad guys involved here and that certainly includes me.
3. Since Phil quoted from a post of mine, I feel that the entirely of this post should be reposted to so as to maintain the context…it follows:
I was recently asked, a couple of times, what my thoughts are regarding Corvis’ outlook as a business and an investment. Surely to the chagrin of many who do not want my opinion on anything, I’ve decided to try to pull my thoughts together and offer them to those with whom I have enjoyed conversation and discussion over these last 2+ years.
First, I must address an open issue that seems to keep coming up. I am no longer an employee of Corvis. I did work for Corvis, I started with them when the company was in a very early stage, had relatively few employees, no real product as yet, and no real infrastructure and processes. My association with Corvis lasted almost four years and the position that I was in allowed me an unusually broad view of the activities within the company and the decisions and personnel that were involved in those activities. I am extremely proud of what my coworker and I created (that’s right, created). Those who have ever worked at an early stage start-up know that its nothing like going to work for an established firm, that little to nothing is given to you, that you and your fellow employees (at all levels) basically fight like hell to create a company where there was none. Rightly or not, I found that I, and many of those I worked with, felt that we were entitled to a proprietary view of the company based on our “sweat equity” well beyond that which one would feel entitled to from being given a job in an established firm. I did, and supposed still do, feel entitled to opinions on how the investment of effort and personal sacrifice of my co-workers and myself was/is being managed via the overall direction of the company. I did not, and still do not, buy the “Corvis, love it or leave it” view espoused by many here. I did, and do, feel that the company exists only because of the many who built it and the many who funded it via their investments, and that both groups are entitled to their opinions regarding the company’s performance and direction.
With all that said, I do regret the extent to which my frustration and anger manifested themselves in personal criticism of Dave Huber. Please read this very carefully, I do not regret my critical view of many decisions and the management style that I believe originated directly from Dave. I believe that these criticisms are founded in fact and proven out by events and subsequent company performance. However, I do deeply regret allowing my frustrations to turn into personal invective directed toward the man himself. To the extent I did so, I view this as a failure by me to maintain my professionalism. I would suggest that the slow build up of my frustration and anger was perhaps understandable given the huge personal investment of my co-workers and I and what seemed to be a continual series of avoidable mistakes which contributed to these investments (both dollars and effort) being squandered. Nonetheless, directing such frustration and anger into personal invective, no matter how justified the criticism by the facts, is wrong in any professional situation…always…and I am subject to justifiable criticism for having done so. To the extent that I can I believe that I have made amends for this mistake.
Although I regret the degree to which I allowed my feeling to become personal in my later posts about Corvis, the label I have been given as a “Huber basher” by some is not, in my opinion, justified. One does not have to be on this board for very long before they quickly discover the true meanings of “hypsters” and “bashers”. Both are people who knowingly post erroneous, distorted, or selective and one-sided information in an obvious attempt to sway and manipulate opinion in support of some personal or ulterior agenda. Any who cannot tolerate any level of objective and supported criticism of a company, and who personally attacks those who offer any objective criticism, are transparently hypsters…there are no companies whose performance is above criticism by its shareholders. Those who post only derogatory information and, in fact, out right lies about a company, and who personally attack any who provide positive information or opinions, are transparently bashers. Which of the posters on this board who fall into one of these two categories is obvious and neither group should be accorded any credibility in my opinion.
I started out posting on this board and LR in an attempt to disarm outrageous disinformation and lies being posted by the many bashers which Corvis seemed to attract in number. I believe that the vast majority of my many posts were nothing more than attempts to refute such bashing and provide what little education on the general technology of backbone networks and their application market that I could to truly interested and objective investors. A number of folks have referred to my posts as containing inside information. I challenge these assertions and defy anyone to find anything that I posted (perhaps aside from my personal views of Dave) which was not previously available by other open sources. In this I was assiduous. In fact, I am not so technical; as I have often pointed out, as to be able to really provide any insider information on the products and I certainly did not, ever, provide unavailable insider information on the business side of things. Mostly I attempted to provide a layman’s view of the benefits of mesh architecture, the components needed to create one, a professional view of the deals that were published information, my view of the market place, etc.
I continue to hold a sizable amount of Corvis shares, I continue to have nothing but the highest respect, admiration, and truly deep affection for many of those I worked with, and I continue to wish nothing but success for Corvis, its employees, and its shareholders. Now, at last, my opinions, for what little they are worth:
The Product – discount all who criticize the Corvis transmission and OOO switching product line (ON) as not working well, or having serious problems, etc. This is nothing but BS. The products work, they work well in their intended environment, they provide benefits to the service providers that no other company’s similar product line can match, etc. Much criticism has been directed at Corvis’ products as being unnecessary or inappropriate to the traffic patterns in US long haul networks. I continue to believe that such criticism either reflects a profound lack of understanding of network architecture and the Corvis products or, at worse, attempts to discredit Corvis’ products with disinformation or selective arguments. For its intended application, Corvis products are the best, the only field proven of their type, manufacturability, field deployable, and supportable. End of story.
I know little about the Dorsal products however I believe that they address an application market that is even more depressed than the terrestrial back bone segment and that their incremental benefits over existing competitive products are much less significant than for the ON line, while the barriers to market entry are even higher than those faced by the ON line.
The OCS is a “me too” product at this point, which is not to say that there is anything at all wrong with that. There are areas in which it has advantages over its competition and areas in which it does not. It is necessary products to compliment the ON line, to ease entry to new customers, and to generate much needed revenue relatively quickly. My only criticism is that its development should have been pushed much faster than it was. It’s not yet clear whether they will make their window opportunity for this market and Corvis should have been able to see revenue from this corporate acquisition (Baylight) prior to this point in time. Ciena’s Core Director has a substantial lead on market penetration that Corvis will have to overcome.
Financial and Sales Performance to Date – The facts are reasonably simple and somewhat depressing. From inception to date Corvis has burned something like $1.1- 1.2B dollars in order to generate something on the order of $280M in gross revenue (I’m sure someone could dig up the exact numbers). To date they only have two real customers, BRW and WCG (Q, FT, etc are completely insignificant) and these deals are over two years old. There has essentially been no progress in building the business for the last two years. Corvis has not significantly penetrated any new accounts or markets over the last two years to include geographic markets such as Europe or Asia or market segments such as RBOCs or true first tier carriers. Their current backlog and new bookings are pretty much zilch and their deployed footprint (which yields follow-on and expansion sales and support) is relatively negligible. When the getting was good, they didn’t get as much as they could; and now that the getting is bad they aren’t. From any view of corporate figures of merit they have performed poorly as an individual company nor have they outperformed (or even matched) their competition. One can argue as to WHY this is (my views on this are well know) but the facts of WHAT in fact is their performance to date remains without dispute.
Ability to Execute and Viability – with respect to potential business with first tier carriers and the Government, legitimate questions can be raised as to Corvis’ viability and ability to execute at large scales and hence their ability to compete for this business. Raising these concerns is legitimate but not necessarily valid or fatal. In my opinion, the Corvis engineering, customer service, and manufacturing team can definitely meet any challenge, there is extraordinary and outstanding talent with proven abilities in these areas of the company. However, we can only time will prove the weight that potential customers give these concerns and whether Corvis can overcome these concerns with other attributes and advantages.
Business Prospects – in the short term there are only really three opportunities for Corvis…the much-discussed AT&T business (see Gilder report excerpt that was posted on this board), the Federal GIG-BE backbone, and some OEO type switching RFPs (for the OCS product). Within 3 – 4 months it should be clear if Corvis has any wins in any of these areas. Without any win within this time frame they are, in my opinion, completely dead meat. If they get any significant business (really T or part of Federal work) then our equity has a chance of being preserved in some form. I am currently holding my stock in hope that they will succeed in one of these areas. If they do not, and again I believe that their prospects will be clear within 3-4 months, then I will dump my position. However, even if they do win some of this business, it is my opinion that Corvis has no chance as a stand-alone company in the face of certain and radical contraction at all levels of the industry. The only beneficial purpose of a win in the short term is to provide added value to the company as an acquisition target. If they do not get a win and add such value, or if Dave continues to refuse to sell the company as he has in the past, then I cannot see how equity can be preserved.
M&A – this cuts both ways…on the Corvis acquiring end (companies that they bought), I don’t think that they have done a very good job. The Algety acquisition has provided no tangible benefit that I can see (in fairness, Corvis is far from the only company that did not reap benefits from bubble acquisitions). My opinion remains that the Dorsal deal was a complete screwing of the investors which is contributing to the burn rate while prospects for revenue are extremely dim for the foreseeable future. I also think that Rick Schaffer of CBIC, who helped tout this deal, is a complete whore and belongs in the category with Blodgett and others or his ilk. The Baylight product (OCS) is, again, valuable but it remains to be seen if it will be too late to benefit the company.
On the other end, and for all those who love to scramble after every rumor of a potential suitor for Corvis, please take a deep breath and relax. There is absolutely no reason for any company to pull the trigger on a Corvis acquisition at this time. If they do not win any business, then the company will only become less costly to acquire in the future if, indeed, there is even any reason to acquire them without any wins, which is doubtful in my opinion. If they do win some business, and hence revenue and support against their burn-rate, then they will not become so suddenly valuable as to deter acquisition. I would personally like to see them bought by Cisco or Siemens, but given previous rebuffs to suitors I don’t know if this will happen under any circumstance without intentional strategy on the part of Corvis’ executive team.
My Major Concern – my major concern regarding this company is its ownership structure. That is, Dave owns a sufficient portion of the company so as to allow him to ignore any criticism or pressure for change. It is a public corporation whose officers and board should be responsive to the shareholders. However, it is in effect a family business and you and your money are just on for the ride. The shareholder’s rights, and their prerogative to make demands of management for performance or change in the absence of performance, are the most important protection of the shareholder’s value. In this case, as with many others (take Adelphia for example), these protections are essentially non-existent do to the concentrated ownership structure. Our major institutional investors have voted with their feet over this issue and our only significant board member, Vinod, left for similar reasons. Dave can retain control and drive this puppy right into the wall if he wants, and so far he has.
My Next Major Concern – I believe that the management team, at the VP level, is outstanding to include the remaining two VP of Sales. However, I do not see any true senior executive dealmakers left at the company. Falcoa, Unter, and Bakosh fit this category and have been driven out. Vinod likewise on the board. I like and respect Jim Bannantine but I don’t believe that he has the contacts and horsepower to be a deal maker in the telecom industry at the level that these deals are truly made. I do not know enough to comment on the recent BOD additions and their ability to form winning teams and maneuver for Federal work. Dave is certainly not the solution to this need. The old saw about build a better mousetrap and the world will beat a path to you door is actually not accurate in this business and this is apparent in Corvis’ past performance.
Last Major Concern – I have no idea what the company’s strategic vision is at this point. Not technical vision but business strategy. Just how does Dave plan to succeed in the anticipatable industry contraction that many believe is/will happen. If you think, as investors, that you see a clear strategy which appears to have some good chance of providing long term success to this company I would be interested in hearing your views.
Well, this posting should give my requestor plenty to say about my long windedness….but I think it beats the scatological discussions that often dominate the board.
February 15, 2003 5:00 PM
Just some notes
2. Corvis has 2 new important board members. One is Dr. Freeman A. Hrabowski III , President of University of Maryland and Donald R. Walker, technology and security expert and former CEO of computer security firm Veritect. We find this interesting, as Corvis is looking to make inroads into Government contracts.
3. France Telecom selected XF festoon for a link between France, Corsica and the US Government. We do not know the progress of that deployment. We do not know the happiness or unhappiness of the deployment.
4. Corvis is known as a 2nd Tier, yet emerging provider of Optical systems. Corvis is known as having Tier 1 technology. If they could garner some substantial optical contracts, they could easily become a Tier 1 provider.
5. We have seen Corvis questioned for not positioning itself in the Metro area. Yet if you look at our notes below from November 13, 2002, you will remember that Dr. Huber felt the Metro was too crowded and the only focus in the Metro would be interoperability.
6. We do not know of the moral at Corvis. Like all other Optical vendors, Corvis has had massive lay-offs. We do not know what effect these lay-offs have had on the remaining staff (which is projected to be 500 by March 31, 2003).
January 2, 2003 5:00 PM
Just Some Stuff
Here is some information on one of the Corvis products, CorWave ON . CorWave ON offers greater scalability to carriers, 2.84 Tbps of capacity. Proponents of the Corvis solution like that this product offers more efficient bandwidth management due to its future scalability when bandwidth is needed. The competitors of Corvis are claiming that the increased scalability is not necessary, since carriers are not growing into the capacity which CorWave ON provides. The competitors feel that Corvis is offering a product that is not currently necessary, which is both early and more expensive than its competitors products (such as Nortel Long Haul Optera 4000 ). This will be an interesting product to watch, as bandwidth continues to grow at the same time the recession looms. A few companies to watch in this sector, who are being mentioned as promising are Adva Optical Networking , Fujitsu ( a tier 1 provider) , Lucent (who surprisingly is still labeled as a 2nd tier provider) and a 3rd tier provider who is emerging, called Turin Networks .
There has been discussion that as traffic demand growth continue, that L-band support will become more valuable. Corvis uses L-band to support greater and future scalability. L- band support gives the carrier the ability to increase capacity with a wide array of different fiber types. Hence, carriers are not limited to one type of fiber. There are several tier 1 providers that do not offer L-band support (CIENA for one). Of course, these companies would argue that L-band is not necessary .
Corvis claims to offer the advantage of quick provisioning. This was demonstrated with the Broadwing and Williams deployments. This enables carriers to deploy additional capacity in a little amount of time. We are still eager to see more customers appear for Corvis. We would like to see another tier 1 Service Provider hire Corvis for their broadband deployment needs. Corvis still has not announced a new tier 1 customer. As the new year starts, we of course, would love to see Corvis named as a tier 1 provider by a new customer. Our greatest hopes would be that Corvis would be internationally recognized and proven as a preferred provider of Optical Networking and Switching systems.
November 13, 2002 5:00 PM
Corvis discussed their business at the UBS Warburg Telecom Conference. The following are our notes from the discussion. The discussion can be found at http://www.corvis.com . The discussion was given by David Smith, Vice President of Engineering.
1. Although Corvis is focused on the All Optical Network (O-O-O), they admit that electronics will remain an important part in the edge of the network.
2. Corvis feels they are posititioned properly for when there is an eventual upturn in the market.
3. Discussed the new government initiative to build a state of the art, all optical network. According to Corvis, this network will be the most advanced of its kind in the world. Corvis said the cost of the network would be $877 million. The network will be called ” Global Information Grid Bandwidth Expansion (GIGBE).”
A. It will be an IP (internet protocol) functional network with an MSPP (Multi-Service Provisioning Platform) Solution .
B. The core will be all-optical
C. Base core network based on Ultra Long Haul (ULH) transport
D. GIGBE network will be global. It will cover the USA with links on the Pacific and Atlantic.
E. Government will require end to end bandwidth management. The government will want instantaneous bandwidth on demand. Corvis explained that the government will require OC-192 bandwidth to be turned up in no later than a one day time.
F. Government has made it clear that it is looking for real time proof of deployment and not ” Power Point presentations”. Government is looking for uninterrupted critical data networking services.
G. Looking for 300 to 400 KM of data transport without amplification. Remember that Corvis claims they can transport up to 3200 KM. Nevertheless, Corvis did claim they could satisfy the data transport needs of the Government.
4. Corvis indicated that they are a bidder for the GIGBE network. Corvis mentioned that the network will include no legacy or SONET gear. Corvis claims that their network solution will perform as required as well as indicated that one year of savings on their network will pay for itself in less than one year. If I heard correctly Corvis claimed that the savings would ” pay for an entire network build + 7 years of costs for operating the network. Corvis claimed that the United States Government has a $53 billion IT budget.
5. Corvis discussed that the Metro space is crowded. Corvis does not feel it makes sense to enter this crowded market. They do get involved with the Metro as they show carriers and networkers that their products have full interoperability.
6. Corvis mentioned that their products are field proven. Corvis claimed that they had a large network deployed in a rapid 16 weeks. Corvis did not identify the build, but we believe that to be Broadwings’ network.
7. Corvis has RFP’s (request for proposal) on a number of situations. The large RFP’s are with France Telecom and AT&T. They have current field trials with Qwest and France Telecom. Claims to have OCS trials with Broadwing. ON System being trialed at Qwest. Corvis claims to have a large un-named carrier testing their full line of products. Claims that there are several others un-named carriers on a smaller scale.
November 4, 2002 11:30 AM
It is our understanding that Lucent’s Long Haul product LambdaExtreme is being tested by AT&T. We have been studying this potential deployment for quite a while. It has been mentioned that CIENA and Corvis are also in contention. George Gilder http://www.gildertech.com (subscription needed) feels that Corvis is a major contender for that contract. Gilder feels that a Corvis long haul solution will cost $110 million dollars less than say a Lucent or CIENA solution and in turn save the Service Provider “some $ 515 million dollars in operating expenses over time.” . The Corvis product is the Corvis Optical Network (ON) . Gilder feels that the ATT upgrade will cost in the area of $500 million to $1 billion. As a side mention, Gilder also has hinted that Corvis may have another deal pending with a deployment in China. Given that Corvis only has a few customers; it would seem that any deployment announcements by Corvis would be material to Corvis.
Corvis has recently announced a buy-back of up to $25 million of its outstanding shares. This would be approximately 10 % of the company at a price of 0.60 (price today is 0.77).