Driven by strong growth in demand for products, software, services and systems integration, sales for fourth quarter 2000 are expected to exceed $50 million, as compared to $14.4 million a year ago. A substantial amount of the sales growth has been driven by systems integration revenues, which include the integration of third-party equipment with the Company’s own products to provide turnkey system solutions for our customers. While systems integration sales have had a significant effect on top line growth, the gross margins achieved on such sales are much lower than the Company’s products and services.
As a result of strong demand for our new AIscout product and systems integration services, as well as continued strength for our existing products, we expect to post our best-ever fourth quarter and full year’s performance, said Robert L. Smialek, President and CEO. Even during a year of rapid growth, cash flows remained strong, and we ended the year with over $25 million in cash and investments, and equally important no debt. The record performance is the result of our strategy to expand our markets by delivering a total package of products, software and services to assist our customers in the successful deployment and management of their complex networks.
Looking forward to 2001, we do not currently anticipate that recent spending cutbacks by major service providers, especially CLECs, will significantly impact our product business nor our service business. To date, our major CLEC customers remain financially strong. Furthermore, our traditional customer base of ILECs and other large service providers continue to demonstrate solid demand for our products, and product orders received in December 2000 remained strong. During 2000, our systems integration business grew much faster than expected, due largely to an aggressive DSL deployment schedule for one of our customers. Our personnel performed extremely well, managing a complex, high-volume integration project with very short delivery schedules, and thereby speeding deployment times for our customer. The unusually high volume of systems integration services that were achieved during the second half of 2000 are unlikely to continue, and absent similar unusually large deployment projects, systems integration revenue will most likely decline in 2001. Nonetheless, we anticipate that growth in our higher margin products, software and services businesses will mitigate any potential earnings impact caused by a slowdown in the lower margin integration services.
Smialek concluded, We remain optimistic about the potential that our recently formed LuxPath Networks, a division focused exclusively on high-speed optical Ethernet transmission products, brings to Applied Innovation. Optical Ethernet networking is a very cost-effective approach to dealing with the phenomenal growth of traffic demand in today’s networks. With the expectation for slower economic growth in 2001, our customers will be looking for the most cost-effective means to deliver high-speed broadband connectivity, particularly in the metro-access market. We believe the products under the LuxPath Networks banner provide significant time-to-market and cost benefits and, as such, we will be aggressively marketing the capabilities of this new division in 2001.
