Corvis Hones in on Federal Business

Byline: Rob Terry

Corvis Corp., the embattled Columbia fiber-optics company, is looking to the federal government to boost business. Corvis has created a special division, headed by a telecom industry executive with extensive experience selling to Uncle Sam, to vet government contract opportunities.

Information technology companies have long weathered economic downturns by servicing the federal government. With spending on telecommunications equipment and networks expected to increase, Corvis hopes it can find more customers for its highly specialized optical switches, which move data rapidly and efficiently around networks.

"The strategic fit is right on," said Andrew G. Backman, Corvis' director of investor relations.

Chantilly research company Input estimates that federal spending on telecommunications gear will jump from $10.8 billion this year to $16.1 billion in 2007. Homeland security initiatives, as well as Department of Defense systems upgrades, e-government programs and telecommuting are driving the trend.

Corvis quietly launched its six-person government solutions group in the spring. It's headed by John McGowan, who has done stints at Lucent and Qwest selling to the government.

A large contract could help Corvis and other equipment makers ride out the storm. But it won't cure the battered sector's ills. "It's not going to salvage the industry," CIBC World Markets analyst Rick Schafer said. "The bias there is still negative."

Telecommunications carriers, the usual customers for Corvis' products, have drastically cut back their spending on network upgrades, and Corvis' fortunes have suffered as a result. Its once-soaring stock has plummeted to around 60 cents a share, and its second-quarter revenue dropped more than 95 percent to $3 million, down from $65 million during the same time a year ago.

To that end, the company moved its stock Tuesday to the Nasdaq SmallCap Market to wait out the telecom meltdown. In a conversation last week for Techway's Verbatim, company President James G. Bannantine termed the move "a fairly likely alternative for us."

Corvis received a delisting warning - sent when a company's stock trades below $1 for 30 consecutive days - from Nasdaq in July. The stock must trade at or above $1 for 10 straight days over the next three months to keep from being delisted.

By moving to the small-cap market, Corvis would have six months to get their stock back up over $1, and could get an additional six months if it met certain financial requirements.

"It buys you a significant amount of time to see recovery, and in this case recovery in the sector," Schafer said. "This certainly isn't Corvis specific."

A reverse stock split, one alternative to boost the stock price, "historically has been perceived negatively by the market," he added.

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