The rumor mill has it that Sycamore Networks Inc. (Nasdaq: SCMR) is preparing for a massive layoff. Some sources are reporting that as much as 40 percent of its staff could be affected.

Possible? Certainly. The company's losses have mounted as its cash reserves have dwindled in the last year. At the end of its fiscal year 2000, Sycamore had more than $1.14 billion in cash and marketable securities, whereas it held $800 million in cash and marketable securities in the comparable reporting period in fiscal 2001, closing July 31, 2001. The company's stock price has been battered on its declining fortunes and the fear that it is burning through cash too fast.

Although a 40 percent cut in headcount seems drastic, it would not be out of line with the pace at which Sycamore's financials have declined. The company burned through $67.4 million worth of cash during its July quarter, which exceeded analyst expectations of a cash burn between $50 million and $60 million, according to a note published last month by Morgan Stanley Dean Witter & Co. Even though the company increased its cash position to $492.5 million from $295.0 million by selling some of its short-term securities, the company still looks as though it needs to cut its spending.

Sycamore's revenues peaked in the quarter ending January 27, 2001, when it reported revenues of $149.2 million and net income of $13.8 million. But during the quarter ending July 31, those numbers had dropped to revenue of $50 million and a net loss of $42.4 million. A 40 percent reduction in staff would reduce Sycamore’s current headcount of 950 down to about 570, putting it only 57 heads above its tally of 513 in April 2000, before it started a hiring blitz that took them as high as 1,118 employees. In April 2001 it laid off approximately 132 employees, or about 13 percent of its staff.

In the near term, the prognosis for a quick return to growth is grim. For the first fiscal quarter of 2002, which closes at the end of this month, Sycamore expects to generate revenue of between $30 million and $40 million, compared with $120.4 million during the same period a year ago.

Sycamore officials declined to comment.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com