380 Ciena workers are fired

Three-quarters are at facilities in Linthicum, Savage

Some employees weep

Market is positive as telecom reaffirms 4Q profit estimate

November 13, 2001|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Ciena Corp. laid off 380 workers, or about 10 percent of its work force, and said it would take a $1.7 billion non-cash charge to reduce good will in connection with its acquisition of Cyras Systems Inc.

The Linthicum maker of fiber-optic networking equipment also announced that it expects earnings to meet targets in the fourth fiscal quarter, which ended Oct. 31. The company's stock climbed as much as 13 percent during trading on the news. Shares closed at $18.84, up $1.66, or nearly 10 percent.

The 380 layoffs were in Ciena's manufacturing operations, with about three-quarters of them taking place at its Maryland facilities in Linthicum and Savage, and the rest in Georgia, California and Europe.

"We find ourselves, purely in the manufacturing area, with some excess capacity that we cannot carry moving forward," said Gary B. Smith, the company's president and chief executive officer.

Ciena had 3,800 employees as Oct. 31. Yesterday was the first time the company has laid off workers since it was founded in the mid-1990's, Smith said.

Ciena is widely regarded to be among the last telecommunications companies to announce layoffs this year.

Analysts were relieved yesterday to hear the company would meet fourth quarter expectations, and they remained optimistic about Ciena's future. "I think long-term, it's very easy to be bullish on Ciena," said Rick Schafer, a research analyst for CIBC World Markets.

Ciena said fourth-quarter revenue is expected to be about $367.8 million. Adjusted net income is expected be 4 cents to 6 cents a share.

The company had previously estimated that revenue for the fourth quarter would be $366 million to $403 million. In August, Ciena had lowered earnings estimates from 18 cents per share to between 2 cents and 7 cents per share.

The company is to report fourth quarter earnings Dec. 13.

"Bottom line is we like the company, we like the company's long-term prospects," said Jay Ritter, a stock analyst who covers telecommunications equipment companies, including Ciena, for Morningstar Inc. of Chicago.

For the short term, there are questions about the outlook of the industry. But what differentiates Ciena is that it is gaining market-share, Schafer said.

Ciena announced last week a deal worth tens of millions of dollars with AFN Communications of Tulsa, Okla. Other customers announced this year include Cable & Wireless PLC and TyCom Ltd.

Still, analysts are worried that some Ciena customers are cutting back costs. "It seems like it's going to be pretty much across the board," Ritter said, "and so that is a concern going into next year."

Ciena is expected to take a $5 million to $6 million charge for the layoffs in the first fiscal quarter of 2002. It will also take a $15 million to $16 million charge during the fiscal fourth quarter because of lease terminations and other property costs.

Those who were laid off will be paid through Jan. 10, Smith said. Ciena also is offering outplacement assistance and training to the employees who were laid off. Some will receive additional severance packages depending on length of service, Smith said.

Dan Arthur, 49, said he was among those Ciena laid off yesterday.

Arthur said he came to work between 8:30 and 9 a.m. and was tapped on the shoulder and sent to a conference room. There, he and about a dozen of his peers were informed that they would lose their jobs. They were told to clean out their desks and sent home, he said.

"I was a little bit shocked," Arthur said.

The mood was grim, Arthur said. Some workers had tears in their eyes, others were speechless, he said.

Despite the distress of being laid off at a time when many believe the economy is in a recession, Arthur remained somewhat optimistic about Ciena. "I think the company has a bright future, and it was really a great company to work for," he said.

Steve Chaddick, the company's chief strategy officer, told a conference of investment analysts in Baltimore yesterday that no further layoffs are anticipated for now. "We are not taking an incremental approach," he said.

Smith, Ciena's CEO, maintained that the company is still strong, with about 60 customers and about $1.7 billion in cash. Ciena, he said, is in a better position than most of its competitors.

In March, Ciena completed a $1.1 billion deal to acquire Cyras Systems Inc. of California. The deal, when announced in late 2000, was valued at $2.6 billion based on Ciena's stock value at the time.

Ciena acquired all outstanding shares of Cyras in exchange for about 27 million shares of Ciena stock, in addition to assuming $150 million in debt. The write-down of $1.7 billion was to reflect Ciena's lower stock valuation.

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