Md. fiber-optics maker lays off 650

Ciena is struggling during slump in telecommunications

March 27, 2002|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Ciena Corp. laid off 650 workers yesterday - about 22 percent off its work force - in a move that the company and analysts said was symptomatic of a troubled telecommunications sector.

It is the third round of layoffs for the Linthicum maker of fiber-optic equipment, which thrived during the tech boom but is now fighting its way back toward profitability. The company has laid off 1,430 workers since November, bringing its employee base down to about 2,300.

Ciena also said it would take more than $300 million in charges during the second quarter for the restructuring costs and excess inventory.

Still, analysts and the company remained upbeat about Ciena's long-term future.

"We like the company in terms of their market position, management and so forth," said Jay Ritter, a stock analyst who covers Ciena for Morningstar Inc. of Chicago. "But the market that they're in, the market environment, is obviously extremely challenging right now."

Wall Street seemed pleased with the news of the cuts, pushing shares up 5 cents to close at $8.40 - though still only a fraction of Ciena's 52-week high, $70.89.

Ciena spokesman Glenn Jasper said 70 percent of the layoffs were in the Baltimore-Washington area, which includes the company's offices and manufacturing plants in Linthicum, Savage and Northern Virginia. A majority of the job cuts were in Maryland, he said.

"I would say everyone was pretty shocked," said Edward Sargent, who said he had worked for Ciena since May and was among those laid off yesterday. "We knew that more layoffs were coming, but you never know who's going to be affected."

Sargent, 43, said the mood at Ciena has been "very depressing," with employees walking on eggshells and hoping they're not the next to go. He said he got a tap on the elbow yesterday morning, as he stood in the office wearing his white Ciena lab jacket, and was told to go to the "breakout room" where employees typically eat lunch. There, he and several of his co-workers were told they were being laid off, he said.

"This is a devastating day for Ciena," he said. "The future is very uncertain."

But the company hopes to return to profitability in the near future, and Ciena said the layoffs are expected to help with that. The job cuts are expected to save Ciena $145 million to $155 million a year, including $85 million to $90 million in operating expenses. Those savings are expected to kick in by the third quarter of this year.

"This substantially reduces the possibility of additional layoffs, but obviously we have to continue to monitor things and make decisions as appropriate," Jasper said. "Obviously there are no guarantees but this substantially reduces that possibility."

Yesterday's layoffs were effective immediately. Workers will be paid through May 24 and will get outplacement training, the company said. They will also be eligible for other severance packages.

Ciena is expected to take a restructuring charge of $125 million to $135 million in the fiscal second quarter for the layoffs, property and equipment write-downs and lease terminations. Ciena is moving out of two buildings in Linthicum to adjust to its smaller work force.

Gary B. Smith, Ciena's president and chief executive officer, said the layoffs would not affect the company's plans to acquire ONI Systems Corp., a California fiber-optics company that makes equipment for metropolitan networks. Ciena said last month that it planned to acquire that company for $1.2 billion in stock and debt, and the deal is expected to close in the second or third quarter of this year.

And Smith said the company would continue to invest in other parts of its business - such as research and development, service and sales - as it tries to prioritize investments during the downturn. He said he is confident Ciena will be an industry leader when the market picks up.

"I think we have very strong conviction of that, based on our product offering, our customer base and what the market opportunity will be when the industry gets to more normalized capital expenditures levels," Smith said.

Analysts echoed that conviction.

Rick Schafer, a research analyst with CIBC World Markets in Denver, said he was not surprised by the company's layoffs and viewed them as positive, in the sense that Ciena management could move forward and make tough decisions.

"My thesis on Ciena doesn't change," he said. "Ciena, again, is a big game hunter. It's feast or famine."

And when carriers start spending again, the contract wins will be in the hundreds of thousands of dollars, and Ciena will be well positioned, he said.

Ciena laid off 380 workers in November and 400 in February. But Schafer said it is the last of the big telecommunications players to make a major cut such as the one announced yesterday.

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