Avici shares leap 30%

Shares of Avici Systems Inc., a Billerica maker of super-high-capacity Internet equipment, soared nearly 30 percent yesterday after Canadian telecommunications giant Nortel Networks Ltd. tapped Avici as a key sales partner.

Nortel named Avici its "preferred provider" of core network traffic-management gear and said it will work to integrate Avici products into technology packages it sells to phone companies to provide a range of voice and data services. Avici's flagship product is a seven-foot router that can move trillions of bits of data each second, as well as several smaller versions.

Avici went public in summer 2000, just as telecom investment mania was cresting; after the IPO the then-fledgling start-up had a market value of over $4 billion, as shares regularly traded for over $600 apiece. Yesterday Avici closed at $13.51, up $3.07 for the day, giving it a market capitalization of $164.6 million.

Steve Kaufman, Avici's chief executive, in an interview yesterday said the company expects the Nortel partnership to boost Avici sales in the second half of this year, but is not immediately upgrading revenue or profit forecasts. Two Wall Street analysts who follow the company expect Avici to lose about $3 a share on revenues of $38 million this year, according to Thomson Financial Network-

Yahoo data. "I do think that we are starting to see some good signs that carriers are spending again," Kaufman said, including this week's revelation by Verizon Communications Inc. that it will pay Nortel hundreds of millions of dollars for a major conversion of its network to Internet-protocol service.

Forecasts by Dell'Oro Group estimate the so-called core routing equipment market will grow 20 to 30 percent annually in coming years, rising from $1.4 billion this year to $2.4 billion in 2007. Cisco Systems Inc. dominates the market, followed by Juniper Networks Inc. Avici has sold equipment to AT&T Corp., France Telecom, and the US government, but in most quarters accounts for only a few percentage points of the market.

The Nortel-Avici deal also includes a provision allowing Nortel to buy 800,000 Avici shares, about 6.7 percent of its current stock outstanding, at $8 a share in 2011, or sooner, if the deal leads to undisclosed new levels of business for Avici. Nortel was also an early pre-IPO investor and has been seen as a potential Avici acquirer, but Kaufman said, "This is about a strong partnership. We're focused on remaining independent as a company and building a very successful business model."

Sue Spradley, president of Nortel's wireline networks unit, said Nortel concluded Avici provides "a perfect complement to our portfolio," offering the kind of reliability and security demanded by big phone companies.

Peter J. Howe can be reached at howe@globe.com.