Cisco Systems (Nasdaq: CSCO ) and others predict another five years or more of massive bandwidth growth across the globe, fueled mostly by digital video traffic and supported by next-generation mobile networks. In a few years' time, the two trends will converge into mobile high-def video powerhouses in every pocket and belt clip.
Sycamore Networks (Nasdaq: SCMR ) could play an important part in solving the bandwidth crunch we're heading into because its flagship product is a traffic optimizer with special emphases on mobile data and digital video. In particular, Sycamore's IQstream is good at selective caching and bandwidth allocation of high-demand streams during viral events.
Sounds like a winner in today's market, right? Well, Sycamore isn't living up to the hype.
Despite significant contracts with mobile operators Sprint Nextel (NYSE: S ) and Verizon (NYSE: VZ ) , Sycamore's sales are dwindling and the company hasn't reported an annual profit since 2006. This week's second-quarter report did nothing to reverse that trend as revenue fell 25% year over year to $12.2 million and the non-GAAP net loss per share expanded from $0.02 to $0.11.
Under such circumstances, you often hear management talking up how nicely things are really working out underneath it all and how strong the business will be in coming quarters. Not Sycamore; CEO Dan Smith says that customer interest in IQstream is high and exciting, but the quarter's results "reflect the continuing market challenges" in that core business.
Sycamore has a lot of cash left over from the glory days a decade ago, but it's melting away. The company is cutting costs and jobs, hunkering down for some more lean years. Maybe management is content to just cash their paychecks until the bank vault runs dry. Investors aren't getting anything out of owning the stock, anyhow.
Like Extreme Networks (Nasdaq: EXTR ) before it, I'm sure someone would love to educate me on what I'm missing here. My mailbox is wide open, and so is the comments box below. In the meantime, you can add Sycamore to your watchlist by clicking here.
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