Ciena lays off 12% of workers

Telecom firm doubles loss estimate, cuts revenue forecast

Analysts remain upbeat

February 06, 2002|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Ciena Corp., the Linthicum-based maker of telecommunications equipment, laid off 400 workers - about 12 percent of its work force - yesterday as it significantly lowered financial forecasts for the fiscal first quarter and said it is closing a research-and-development facility in Marlborough, Mass.

Analysts, though, voiced continued optimism about the long-term prospects for Ciena and said the company's problems are symptomatic of broader struggles in the industry.

"For the long term, Ciena is going to be very strong, and anyone who's telling you otherwise is off the wall," said Mark Lutkowitz, a telecommunications analyst for Charlottesville, Va.-based Communications Industry Researchers.

The company's announcement comes amid a slew of industry cutbacks, including recent layoffs at companies ranging from New Jersey-based Lucent Technologies Inc. to Columbia-based Corvis Corp. It is the second round of layoffs for Ciena, which cut 380 jobs in November.

Wall Street punished Ciena for the news, driving shares down $1.12, or 11 percent, to close at $9.

The revised forecast did not surprise analysts, though some expected a smaller change.

"The magnitude of the miss was greater than expected," said Rick Schafer, a research analyst for CIBC World Markets.

Ciena said it expects to report revenue of about $160 million for the first quarter, which ended Jan. 31, compared with previously announced forecasts between about $221 million and $258 million.

Schafer had predicted Ciena would have revenue of $226 million for the first quarter but remained upbeat about the company's future.

"I still believe that Ciena's the best-positioned company in the optical networking space," Schafer said. "Near-term, I think it reflects the downturn in the space. Nobody's immune."

The company also said it would take a net loss of 21 cents to 24 cents for the quarter. Adjusted net loss - which does not include restructuring costs and other charges - is expected to be between 19 cents and 22 cents for the first quarter.

Ciena's previously announced estimates for adjusted net loss were between 8 cents and 12 cents per share. Analysts were expecting a loss of 10 cents per share, according to Nelson Information.

"It goes without saying that we're disappointed with this quarter's results," the company's president and chief executive officer, Gary B. Smith, told analysts during a conference call yesterday.

The company is expected to release its final first quarter results Feb. 21.

Ciena attributed the lowered numbers to volatility and unpredictability in customer spending patterns, and that some customers lowered and some delayed equipment orders.

The layoffs at Ciena bring its work force to slightly fewer than 3,000. It was the second time the company laid off workers since it was founded in 1992.

About two-thirds of yesterday's layoffs were in the Baltimore-Washington area, which includes the company's headquarters in Linthicum and its facilities in Savage and Northern Virginia.

The research-and-development facility in Marlborough, Mass., that the company is closing employs 90. Some of those workers were given the option to relocate to Ciena's offices in Georgia, California or Maryland, the company said.

Most of the layoffs were in manufacturing, Ciena spokesman Glenn Jasper said.

The layoffs were effective immediately. Affected employees will be paid through April 5 and will be given outplacement assistance and training, the company said. They will also be eligible for additional severance packages, Ciena said, though it did not release details on the packages.

Jasper said the company does not expect more layoffs but will continue to monitor the business and the environment.

Hasan Imam, a partner and senior research analyst at Thomas Weisel Partners in New York, said in a report issued yesterday that the firm had been concerned that management was not cutting costs aggressively enough. He added: "With the newly announced work force reductions, Ciena finally is taking steps necessary to cope with protracted downturn, a positive in our view."

But Schafer, the CIBC World Markets analyst, said that when it comes to reducing costs, "I think most people would say that the cut did not go deep enough."

Ciena is expecting to take a restructuring charge of $9 million to $11 million in the second quarter for the layoffs and other costs.

Smith said revenue in the fiscal second quarter is expected to be about the same or less than revenue during the first quarter. He added that Ciena does not believe it is losing deals to competitors and that parts of the company will be expanded.

"We remain committed to our strategy of sustained investment in key areas of our business, such as research and development and sales - those areas that are necessary to ensure that we maintain our technology and our lead in the marketplace," Smith said.

Simon Leopold, a telecommunications equipment analyst and a vice president for Merrill Lynch in New York, said the first chance for the sector to recover is expected to come in the first half of 2003.

Leopold agreed with other analysts that the long-term outlook is good for Ciena. But the short-term is hard to predict, he said.

"In a nutshell," Lutkowitz said, "they have to wait until the market bounces back like everybody else."

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