Avici Systems Inc. (AVCI-NASDAQ) is in a bit of a pickle this morning. There have only been a bit more than 40,000 shares traded pre-market, but shares are down almost 30% to under $10.00 in pre-market activity. The stock was almost on year-highs yesterday (closed at $13.54 and the 52-week trading range is $4.28 to $13.96.
The company announced that it was discontinuing development of its core router. The company did actually post a profit last night EPS before items, but it said it is going to transition away from its core routers even though the router area will continue to be profitable for the rest of 2007 "to focus on its new product initiative Soapstone Networks." It is also paying a special $2.00 dividend per share, which will further take its cash balance lower (which was only $70.2 million at the end of the quarter).
This looks like the street so far is questioning if this strategy change and chewing up of cash was the right thing to do. If the stock was close to its lows and if it was dead money then the strategy may have been dead on. But the stock was trading right up close to 3-year highs, and that will make an average investor scratch his head.
Jon C. Ogg
April 19, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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