Ciena lays off about 450 in earnings push

Struggling company hopes it can return to profitability soon

Once $149, shares now $3.49

Work force is down to about 2,100 from 3,778 in October

September 21, 2002|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Ciena Corp. laid off about 450 workers yesterday, leaving the company only a little more than half the size it was a year ago while it continues to cut costs in the floundering telecommunications environment.

The maker of fiber-optic equipment hopes the layoffs - about 17 percent of its work force - will return Ciena to profitability. About 65 percent of the cuts were at the company's Linthicum headquarters.

"The actions taken today are part of Ciena's ongoing efforts to manage our business back to profitability as soon as possible without sacrificing what we believe are future revenue and growth opportunities," Ciena President and Chief Executive Officer Gary B. Smith said in a statement.

A high-flying company during the tech boom, Ciena raised $122 million in its 1997 initial public offering and dazzled investors with a stock price that soared to $149.50 in October 2000. When the telecom bubble burst, Ciena was among the last telecom companies to announce layoffs.

But the company began laying off workers in November, slashing 380 jobs. More layoffs followed in February, March and June.

"It's like a rolling layoff - it's just every couple of months you have another layoff, and it would be nice if they could just determine the number that they need to be at and just go to it," said Sam Greenholtz, a senior analyst at Communications Industry Researchers Inc.

"This constant layoff hanging over everybody's heads, I think, has just gotten to be a real morale problem for Ciena."

Ciena's stock has also nose-dived. It closed at $3.49 yesterday, up 10 cents.

Ted Jackson, a senior equity analyst for U.S. Bancorp Piper Jaffray in Minneapolis, said the stock traded higher on yesterday's layoff announcement because institutional investors have been wondering when Ciena would bring down costs to meet expenses.

The size of the telecom market has collapsed. With its cutbacks, Jackson said, Ciena is "coming to terms with the current reality of the situation."

Employees were notified about the layoffs yesterday morning. The cuts came across all departments, but manufacturing, sales, services, marketing and administration were hit the hardest, said company spokesman Glenn Jasper.

The cuts bring the company down to about 2,100 workers from 3,778 as of Oct. 31, about a 44 percent reduction.

Ciena will take a restructuring charge of $75 million to $80 million in the fiscal fourth quarter.

The cuts announced yesterday are expected to save the company between $50 million and $55 million a year, which includes about $25 million to $30 million in operating expenses.

Workers who lost their jobs yesterday are being paid through Nov. 19. They are also eligible for additional severance packages and outplacement training.

"The past year has been a challenging one for all of us in the telecom industry, but challenge often leads to opportunity," Smith said. "As difficult as today's actions are for us as a company, Ciena is fortunate to be significantly better positioned, both financially and from a product-offering perspective, than most, if not all of our competitors. We continue to support all of our product lines, delivering comprehensive next-generation networking solutions and superior service and support to our customers worldwide."

Mark Lutkowitz, a telecommunications analyst for Communications Industry Researchers, said the layoffs simply dilute the human resources that Ciena has available. He believes that what the company needs to do is focus more on its long-haul products, which are used to ship voice and data from city to city on the information superhighway.

"They need to understand that long-haul is their bread and butter," Lutkowitz said.

Lutkowitz said Ciena had to lay off workers because, though the company has enough cash in the bank to ride out the storm, its burn rate is too high.

Ciena has about $1.4 billion cash, net of debt. It is expecting to have used between $145 million and $155 million in the fiscal fourth quarter ending Oct. 31.

For the fiscal third quarter ended July 31, Ciena reported sales of $50 million, and it spent about $54 million in operating expenses for research and development during the quarter.

"I don't know where they're going to draw the line," Lutkowitz said. "This is a time when you've got to make some hard decisions and retreat, focus. And they're not doing it now as far as I can tell."

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