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Voltaire expects revenue dive

InfiniBand feels knock-on effect

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InfiniBand supplier Voltaire expects sharply lower third quarter 2008 revenues and a net loss for the period, due to delays on two multi-million dollar orders from financial institutions.

The orders were expected in September but did not arrive. Voltaire expects Q3 revenues to be between $14.1m and $14.6m instead of the anticipated $17m-$18m, leading to a non-GAAP net loss of $0.02 to $0.03 per share instead of anticipated net profit of $0.02 to $0.04 a share. We calculate this means a net loss of $0.4m to $0.6m.

On a sequential basis this is an abrupt downturn from Q2, which saw net revenues of $17.1m and a $0.8m ($0.04/share) net profit. Back in the third quarter of 2007 Voltaire recorded net revenues of $15.5m and a net profit of $0.134m.

At the end of July, Infiniband CEO and chairman Ronnie Kenneth said: "We continued to see demand from our main commercial verticals with orders from the financial services vertical doubling over the previous quarter adding more than 10 new customers, closely followed by strong order growth in both the manufacturing and life science verticals.”

Voltaire has built up its product differentiation against Ethernet and strengthened existing OEM relationships well. It has gained certification with Oracle RAC, been used in the Oracle Database Machine with HP, and added support for IBM's DataPlex. It's also working with DataDirect, with its products used in Sun's Constellation product, and developing a 40Gbit/s InfiniBand switch as a follow-on to the current 20Gbit/s product.

It's obvious that with September having been financial market mayhem month and October aggressively pursuing the same path, the finance vertical is a disaster area. As the lending freeze and slowing economy affects manufacturing that sector will also slow down, particularly as InfiniBand products are typically installed on a spend-more-to-get-more basis and not as a cash-savings measure. So far life sciences seem relatively unaffected.

How strong is Voltaire?

It was dependent upon three OEMs for for 53 per cent of its sales in 2007: HP (27 per cent), IBM (24 per cent) and Sun (2 per cent). OEM sales may be expected to slow due to finance market order troubles and sluggish manufacturing. However, the life sciences and supercomputer markets should hold up better in the next quarter or two.

Three institutions own 47.1 per cent of Voltaire's ordinary shares: BCF II Belgium Holding SPRL, Pitango Venture Capital and Vertex Venture Capital. The current price of the firm's shares on Nasdaq is $3.40, producing a market capitalisation of $70.97m. On September 8 they traded at $4.22, having been worth $6.13 on June 4.

Voltaire's financial year 2007 annual report stated: "We have incurred net losses in each fiscal year since we commenced operations in 1997. We incurred net losses of $3.2m in 2007, $8.8mn in 2006 and $10m in 2005. As of December 31, 2007, our accumulated deficit was $88.3m."

That deficit looks set to increase. Formal Voltaire Q3 results are expected on Wednesday, October 29. The firm warns investors to disregard any previously issued outlook for the second half of this year, implying that Q4 could be bloody too - perhaps bloodier.

Voltaire will be trying very hard to get a sense of how the next few quarters are going to perform and adjusting its business operation to minimise losses. Making a profit would be virtually impossible for the next few quarters. But if the investors insist on profits or breaking even then the business adjustment will be painful. ®

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