Avanex complains about 3S Photonics

January 2, 2007 By Stephen Hardy -- Avanex cited the dissolution of a distribution agreement with the former Avanex France in projecting that its 2Q 2008 revenue would fall below previously issued guidance.

January 2, 2007 By Stephen Hardy -- Avanex Corp. (search for Avanex) has filed an arbitration complaint in New York against 3S Photonics (search for 3S Photonics) -- the former Avanex France -- alleging that the French firm breached various obligations, in particular that 3S Photonics prematurely terminated its exclusive distribution agreement with Avanex. Avanex cited the dissolution of the distribution agreement as a factor in projecting that its 2Q 2008 revenue would fall below previously issued guidance.

3S Photonics has not commented on the complaint.

3S Photonics was created in April 2007 when Avanex sold its Avanex France to the French company's director, Didier Sauvage, and Global Research Co. The assets originated with Alcatel Optronics, which Avanex purchased in 2003. Avanex provided 3S Photonics with $17.3 million for anticipated operating capital. It also retained a 10% stake as well as "privileged commercial partnerships," in the words of a press release 3S Photonics issued last April.

The company currently supplies 1500-nm transmitter modules, 980-nm pump modules, 2.5-Gbit/sec 1300-nm laser chips, and filters based on fiber Bragg gratings.

Avanex cited the alleged misdeeds as at least a partial explanation for the fact that it expects revenue for the second fiscal quarter of 2008, ending December 31, 2007, will be in the range of $51 million to $53 million, rather than the $56 million to $58 million it had announced as guidance previously. The company announced revenues of $54.7 million in the prior quarter and $55.6 million in 2Q 2007.

The company said it does not expect to receive future distribution revenue from 3S Photonics, which will reduce Avanex's revenue for the third fiscal quarter as well. The company says it now expects flat to slightly lower revenues for fiscal 3Q compared to 2Q. Avanex believes gross margins for the second fiscal quarter will generally be consistent with the prior quarter.

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