ADVA Optical Networking reports strong revenue growth and profitability at upper end of guidance in Q3 2006

Q3 2006 revenues up 58% on Q3 2005 to reach a new all-time high of EUR 53.1 million

IFRS Q3 2006 pro forma operating income of EUR 0.9 million (2% of revenues)

Forecasted Q4 2006 revenues to reach between EUR 62 million and EUR 67 million with pro forma operating margin between 6% and 9%

November 9, 2006. Martinsried/Munich, Germany, and Mahwah, New Jersey, USA. ADVA Optical Networking today announced Q3 2006 financial results for the quarter ended September 30, 2006, and prepared in accordance with International Financial Reporting Standards (IFRS). ADVA Optical Networking today also published key financials as per U.S. Generally Accepted Accounting Principles (U.S. GAAP), the accounting framework applied in financial statements published prior to the release of the annual report 2005.

Q3 2006 IFRS FINANCIAL RESULTS
Including the operations of recently acquired Movaz Networks since July 12, 2006, in Q3 2006 revenues totaled EUR 53.1 million, up 58% when compared to EUR 33.7 million in Q3 2005 and up 29% when compared to EUR 41.2 million in Q2 2006, respectively. IFRS pro forma operating income, excluding stock-based compensation and amortization and impairment of goodwill and acquisition-related intangible assets, was at EUR 0.9 million in Q3 2006 after EUR 5.6 million in Q3 2005, primarily driven by initially lower gross margin Movaz operations, variations in product and customer mix as well as expanded research & development expenses. IFRS pro forma quarterly net profit was at EUR 0.4 million in Q3 2006 after EUR 4.0 million in Q3 2005, with diluted pro forma net earnings per share of EUR 0.01 in Q3 2006 after EUR 0.11 in Q3 2005.

In Q3 2006, ADVA Optical Networking experienced an IFRS actual net loss of EUR 4.3 million due to the factors mentioned above as well as initially high amortization of intangible assets of EUR 4.0 million largely related to the Movaz acquisition. This compared to an IFRS actual net profit of EUR 3.6 million in Q3 2005. Diluted net earnings per share were EUR -0.10 in Q3 2006 and EUR 0.10 in Q3 2005.

Andreas G. Rutsch, ADVA Optical Networking’s chief financial officer, comments: “With Q3 2006, ADVA Optical Networking concluded eleven consecutive quarters of growth in revenues since Q1 2004, reflecting the strong and sustainable underlying market growth and our excellence in steadily growing our business. IFRS pro forma operating income in Q3 2006 at EUR 0.9 million or 2% of revenues was at the upper end of our guidance. We expect a sustainable improvement of our IFRS pro forma operating income already in Q4 2006 due to higher revenues and improved gross margins.”

INFORMATION ON Q3 2006 U.S. GAAP RESULTS
Based on the same revenue figures quoted under IFRS, ADVA Optical Networking’s U.S. GAAP actual net loss for Q3 2006 was EUR 7.7 million, or EUR 3.4 million higher than the figure reported under IFRS. This difference is largely attributable to the capitalization under IFRS of part of the company’s development costs, higher amortization of intangible assets related to the Movaz acquisition and a lower valuation of inventories under U.S. GAAP. Further details on key U.S. GAAP financial numbers are provided in the Nine-Month Report 2006, available in the investor relations section of the corporate web site, www.advaoptical.com.

Q3 2006 HIGHLIGHTS

* ADVA Optical Networking completes acquisition of Movaz Networks, a U.S.-based leading optical equipment provider, helping to advance ADVA Optical Networking’s WDM market leadership and ROADM product portfolio.
* ADVA Optical Networking adds 61 new carriers to its customer base, primarily through the acquisition of Movaz, to achieve a carrier end-customer base of 196 at the end of Q3 2006.
* ADVA Optical Networking and InfoVista announce partnership supporting the mass-market adoption of Ethernet services.
* ADVA Optical Networking successfully completes qualification of its FSP systems for an early version of IBM’s planned new GDPS mainframe clustering solution.
* ADVA Optical Networking enters Germany’s “Top 30” technology stock index TecDAX.
* ADVA Optical Networking raises USD 10 million in cash through a capital increase.

CONFERENCE CALL AND WEBCAST
In conjunction with the release of its Q3 2006 financial results, ADVA Optical Networking’s chief executive officer, Brian L. Protiva, and chief financial officer, Andreas G. Rutsch, will host a conference call for analysts and investors at 3:00 p.m. CET/9:00 a.m. EST today, November 9, 2006. Investors may listen live via webcast on ADVA Optical Networking’s website, located on the ‘earnings webcasts’ page under ‘financial results’ in the investor relations section of ADVA Optical Networking’s website at www.advaoptical.com.

Q4 AND FULL-YEAR 2006 OUTLOOK
Currently ADVA Optical Networking expects its market for optical WDM and Ethernet access solutions for metro networks to grow by 20% to 25% per year in both 2006 and 2007, based on the expectation of ongoing strong demand for metro infrastructure deployments and enterprise solutions. Given the consolidation of Movaz from July 12, 2006, onwards, ADVA Optical Networking expects to achieve full year 2006 revenues between EUR 193 million and EUR 198 million and revenues ranging between EUR 62 million and EUR 67 million in Q4 2006. Further, ADVA Optical Networking projects its full year 2006 IFRS pro forma operating margin between 7% and 8% of revenues, which translates in a Q4 2006 IFRS pro forma operating margin between 6% and 9% of revenues, up significantly from Q3 2006 and driven by higher revenues and improve¬ments in gross margins. Additionally, in Q4 2006 there will be no further significant one-off Movaz integration expenses. ADVA Optical Networking will release its Q4 and full year 2006 financial results on March 13, 2007.

“ADVA Optical Networking continues to invest, building a solid foundation for future growth. With the acquisition of Movaz, we grew our global market share, extended our Optical+Ethernet solutions portfolio, gained engineering capabilities which will accelerate our innovation potential considerably, and substantially improved our foothold in North America. Ongoing ADVA Optical Networking-Movaz integration efforts continue to be a critical focus point because this acquisition is key to allowing us to capitalize on the vast opportunities in the optical networking industry. Early results from these efforts will lift our pro forma operating margin back to higher levels in Q4 2006. In addition, it will provide solid profitability by increased gross margins and the realization of operational synergies over the next three quarters,” stated Brian L. Protiva, chief executive officer of ADVA Optical Networking.

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Christine Keck

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ADVA Optical Networking

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