CLOUD

Revenues in Q2 2010 at EUR 68.6 million were slightly above guidance of between EUR 63 million and EUR 68 million, up a significant 18.0% vs. Q2 2009 at EUR 58.2 million and up 8.6% vs. EUR 63.2 million reported in Q1 2010. IFRS pro forma operating income, excluding stock-based compensation and amortization & impairment of goodwill & acquisition-related intangible assets, amounted to EUR 1.9 million or 2.8% of revenues in Q2 2010, within guidance of between 1% and 5% of revenues. This compares to EUR 1.1 million or 1.9% of revenues in Q2 2009 and EUR 2.7 million or 4.3% of revenues in Q1 2010. While the year-on-year rise of pro forma operating income is due to higher revenues and increased other operating income, the quarter-on-quarter reduction of pro forma operating income results from a lower pro forma gross margin, higher selling & marketing expenses and lower net capitalization of development expenses. The reduction of pro forma gross margin from 43.0% in Q1 2010 to 41.0% in Q2 2010 most notably is related to the weakening of the EUR against the USD and the transition of ADVA Optical Networking’s well-established FSP 500 platform to the next-generation FSP 150 platform.

The IFRS operating income rose to EUR 1.0 million in Q2 2010, after EUR 0.2 million in Q2 2009. The key driver for this improvement is the above-mentioned increase of pro forma operating income.

The IFRS net income amounted to EUR 0.6 million in Q2 2010, up from EUR 0.5 million in Q2 2009. Beyond the improvement of the operating income, net foreign currency exchange gains of EUR 0.7 million in Q2 2010 after EUR 0.1 million in Q2 2009 drove the rise in net income. These effects were subdued by income tax expenses of EUR 0.8 million in Q2 2010 after an income tax benefit of EUR 0.4 million in Q2 2009. Basic and diluted IFRS net earnings per share were EUR 0.01 each, unchanged from Q2 2009.

“We are very pleased with our Q2 2010 revenues of EUR 68.6 million, which exceed guidance and are up strongly, 8.6% vs. the previous quarter and 18.0% vs. Q2 2009. This development is driven by higher sales in carrier infrastructure equipment and also by a year-on-year pick-up of our Ethernet access business. Q2 2010 pro forma gross margin at 41.0% of revenues came in below the 43.0% seen in the previous quarter. This reduction is due to the weakening of the EUR against the USD, the transition of our well-established FSP 500 platform to the next-generation FSP 150 platform and elevated costs driven by investments in new growth opportunities. However, the impact of the changes in foreign currency exchange rates to our pro forma gross profitability was compensated by net gains from foreign currency hedging recorded below the operating-income line. Also, we are confident that our pro forma gross margin will strengthen in the coming periods, driven by further product cost improvements, cost-effective platform redesign activities and product innovation. Given the Q2 2010 investments in selling & marketing in order to facilitate additional profitable growth in H2 2010, our pro forma operating income came in at a fair 2.8% of revenues,” commented Jaswir Singh, chief financial officer & chief operating officer of ADVA Optical Networking.

ADVA Optical Networking has the potential to continue to significantly grow revenues and aggressively drive cost efficiencies in its product platforms in a macro-economic environment that is still volatile but slightly improving. The Company expects Q3 2010 revenues of between EUR 75 million and EUR 80 million. Further, ADVA Optical Networking anticipates Q3 2010 pro forma operating income to range between 2% and 6% of revenues. ADVA Optical Networking notes that it will continue to perform detailed quarterly reviews of the expected business development with respect to all intangible assets, including capitalized research and development expenses. These reviews may result in non-cash impairment charges in Q3 2010 and beyond. The pro forma operating income guidance provided above excludes any such potential impairment charges. ADVA Optical Networking will publish its Q3 2010 financial results on October 21, 2010.

“ADVA Optical Networking’s revenues developed well in Q2 2010, due to incremental carrier infrastructure business in the Americas. While this clearly increases the robustness of our business mix, our growth in H2 2010 will very likely be driven by additional enterprise and Ethernet access business, resulting in a corresponding pick-up in profitability. Our Q2 2010 book-to-bill ratio is very strong, with significant order back-log for our industry-leading and highly innovative low-latency optical transport solution for the financial services industry. Additionally, the massive increase in mobile backhauling traffic driven by 3G and 4G mobile phones will have a major positive impact on our Ethernet access business. We create value for our customers - this will continue to translate into profitable growth,” stated Brian Protiva, chief executive officer of ADVA Optical Networking.