Zhone Technologies reported a 3% sequential revenue decline in the first quarter, as it continues to try to grow revenue from newer products faster than that from older products declines. Still pursuing a goal of profitability by the end of this year, the access equipment vendor continues to rack up new customers, focusing particularly on emerging markets overseas. And new products that might aid its growth, while still under wraps, have now entered customer trials.

Revenue from Zhone’s next-generation access gear, based on its Single-Line Multiservice (SLMS) packet architecture, increased more than 15% sequentially to more than $30 million in the first quarter. But revenue from its legacy gear sank 29%, due in large part to the divestiture of one legacy product line late last year. SLMS gear contributed 70% of Zhone’s $43 million in total revenue in the quarter, up from 59% in the previous quarter.

Zhone added 10 new customers in the quarter, including one large overseas customer. Forty-seven percent of Zhone’s first-quarter revenue came from outside the U.S., up from 37% in the fourth quarter, thanks to a focus on emerging markets. Growth in those emerging markets should drive a 2% to 5% sequential increase in second-quarter revenue as well, Zhone said.

“We are waiting for a serious turnaround,” ThinkEquity Partners analysts wrote in a research note this morning. “This was the third consecutive quarter around this revenue level, and 2Q does not appear to see material improvement. We believe there will be solid revenue growth for the next couple of years, but the risk remains high.”

Zhone is currently trialing a new, unannounced optical transport product it expects to publicly unveil in the next few weeks, the company said during this week’s earnings conference call.

The new product will be an SLMS version of Zhone’s existing wavelength-division multiplexing gear, which the company obtained through its 2004 acquisition of Sorrento Networks. Sales of that gear were flat last year and are expected to decline along with the vendor’s other legacy products.

Zhone Chief Executive Officer Mory Ejabat hinted at the new optical gear in January, promising more details either late in the first quarter or early in the second. A few weeks earlier, he had promised new products based on pseudowires and gigabit passive optical networking to be unveiled around the same time frame.

“The dominant risk [for Zhone] is simple competition, followed by the lack of a wireless portfolio,” ThinkEquity analysts said. “The group of companies competing fiercely with Zhone includes Calix, Ericsson, Huawei, Occam, Pannaway, Siemens, Tellabs, UTStarcom, Alcatel-Lucent, Adtran, and ZTE. On the wireless side—or lack thereof—we see WiMax as one opportunity for Zhone to expand, as that access method is still very new and an industry pattern has yet to be established. Any such expansion into WiMax would likely take place via acquisition or merger, rather than internal development.”