AMCC, ZettaCom Cut Staff

Light Reading
News Analysis
Light Reading
11/25/2003



Companies focused on network processors and related chips are continuing to cut back, with both Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) and ZettaCom Inc. trimming staff recently, according to sources.

AMCC laid off 90 last week, including parts of the network processor division, according to sources. ZettaCom, meanwhile, cut its marketing division and some product development.

Despite such cutbacks, not all is gloomy in the network processor business. Business is picking up for a few, and some of the smaller players, such as Bay Microsystems Inc. and EZchip Technologies, claim they're approaching stability (see Startups Spout Bravado at NPC West and Bay Closes $10M C Round). But chip-industry executives expect any recovery in 2004 to be slow and spotty, with no universal increase in orders.

That means the dry spell will linger even for companies such as ZettaCom that have design wins secured (see ZettaCom Has Designs on Fujitsu). Revenues from some of ZettaCom's wins have been delayed, and investors asked the company to trim its burn rate, says Linley Gwennap, analyst with consultancy The Linley Group. "It's just taking them longer to get into a good cash-flow position," he says.

As a result, one source -- other than a Light Reading message board post -- pegged the cuts at Zettacom at 50 percent, or about 35 employees. Linley Group analyst Jag Bolaria isn't certain that the cuts were that severe: "My sense is that it's more for redistribution and cash preservation," he says.

ZettaCom CEO Daryn Lau says the company is embarking on a strategy to shift some of its work offshore, the kind of cost-cutting move that's become popular (see Headcount: Offshoring, Dude!).

Key architectural decisions will be made in Santa Clara, Calif., but ZettaCom's "less essential engineering," including some chip and board design, will happen overseas, Lau says. The company is also shifting sales and marketing to Asia, to be closer to customers.

"We did have a layoff, but I look at it as a continual process to strengthen the company," Lau says. He wouldn't quantify the layoffs but says headcount will come out even "in the medium term" once the offshore facilities are established.

It's possible AMCC is looking at cost-cutting as well, although officials there would neither confirm nor deny that layoffs took place last week.

AMCC has been a relative success in network processors, taking the lead market share by revenues, according to The Linley Group. But that lead is shrinking as some of Intel's design wins come to fruition, Gwennap says.

Overall, losses still dog the company, and the cuts may have been necessary to meet CEO Dave Rickey's pledge of profitability by mid-2004. The company needs to diversify beyond its legacy telecom products, which will be among the last categories to enjoy recovery, says Jeremy Bunting, analyst with Thomas Weisel Partners.

Other companies have made a similar switch. Vitesse Semiconductor Corp., in particular, has shifted identity from a telecom supplier to a storage supplier. AMCC has begun such a transition with a plan to get into storage networking, the first step being its recent acquisition of JNI Corp., but it needs to do more. "I'm not sure what their differentiation there is," Bunting says. (See AMCC Moves Into Storage and Allstream Expands Ethernet Service).

It's likely that "high-touch packet products" such as network processors will recover faster than telecom chips, says Mark Hunsicker, vice president of AMCC's wide-area networking division. But the company is "starting to see hints" of a recovery on the telecom side, he says.

Like every chip company, AMCC faces the question of how real these recovery signs are. There's still the question of how much activity is the result of customers' chip inventories drying up, as opposed to an earnest increase in carrier spending, Hunsicker says.

— Craig Matsumoto, Senior Editor, Light Reading

(3)  | 
Comment  | 
Print  | 
Copyright © 2019 Light Reading, part of Informa Tech,
a division of Informa PLC. All rights reserved.
Privacy Policy | Cookie Policy | Terms of Use