Bloomberg News

ECI Net Income Falls on Decline in Broadband Sales

February 01, 2007

ECI Telecom Ltd., a maker of telecommunications equipment, said fourth-quarter profit (ECIL:US) fell by two-thirds after sales in its broadband access division dropped.

Net income declined to $2.3 million, or 2 cents a diluted share, from $7.6 million, or 6 cents, a year earlier. Revenue fell to $154 million from $169 million, the Petah Tikva, Israel- based company said today in an e-mailed statement.

``Sales at our broadband access division declined in the third and fourth quarters due to weaker demand from the division's two principal customers, but we expect them to gradually recover during 2007,'' Chief Executive Officer Rafi Maor said in the statement.

ECI's sales (ECIL:US) have risen every year since 2003, helped by orders from emerging markets and for optical gear. Revenue growth slowed in 2006 when orders for broadband access equipment fell as two major customers, Deutsche Telekom AG and France Telecom SA, delayed purchases because of technological and regulatory issues.

Sales at ECI's optical network division rose 17 percent to $103 million in the quarter from a year ago while its broadband access unit saw sales drop 41 percent to $40 million.

``Broadband will rebound starting in the first quarter,'' Chief Financial Officer Giora Bitan said in a phone interview. ``We will see revenue growth from new customers with existing customers making up a significant part of revenue as well.''

Emerging Markets

ECI hopes to leverage the presence of its optical division in emerging markets such as Russia and India to make more sales in broadband. The company also expects to sign contracts with additional large European telecommunications companies. By year end, it expects to see sales from a partnership agreement signed with an unnamed major communications equipment manufacturer in the U.S., Bitan said.

The company forecast revenue and net income, excluding charges, for the first quarter to be unchanged from the fourth quarter with subsequent growth in the rest of the year. For all of 2007, ECI forecast revenue growth of between 4 percent to 8 percent, with net income growing faster than sales.

In the fourth quarter, income excluding share-based compensation, acquisition and restructuring costs was $10 million, or 8 cents a share, ECI said. The average of five analyst estimates compiled by Bloomberg was earnings per share of 9 cents, excluding charges.

Earnings were ``essentially in line,'' said Daniel Meron of RBC Capital Markets in Tel Aviv, who rates the shares ``outperform'' and had estimated earnings of 9 cents.

New Fund

ECI also said that Bitan is expected to leave in the first quarter of this year. Bitan said he will be managing a new $100 million fund for Poalim Capital Markets, a unit of Bank Hapaolim Ltd., Israel's largest lender.

Revenue for the year rose 4 percent to $656 million. Net income fell to $22.1 million, or 18 cents a share, from $39.9 million, or 34 cents.

Shares in ECI, which is 31 percent-owned by Koor Industries Ltd. (KOR), yesterday closed down 28 cents, or 3.2 percent, to $8.52 in Nasdaq composite trading. The shares have gained 3.3 percent in the past 12 months while the Nasdaq Composite Index has risen 6.8 percent. Shares of Koor rose as much as 2.6 percent to 245 shekels and traded at 240.40 shekels at 3:56 p.m. in Tel Aviv.

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editors responsible for this story: Lars Klemming at lklemming@bloomberg.net


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