Optical components

Avanex Does a French Trim

In a move many considered inevitable, the restructuring at struggling components vendor Avanex Corp. (Nasdaq: AVNX) is spreading to France.

Avanex announced a French restructuring today, a follow-up to the closing of North American manufacturing facilities announced last year in a move expected to save $12 million per year. On a conference call with analysts today, CEO Jo Major said the French restructuring would be the more substantial of the two, saving $28 million per year.

Avanex will cut about half of its staff in France, most of it on the manufacturing side. Major did not give a specific number, but Avanex employs a total of 400 in Europe between its facilities in France and Italy, according to SEC documents.

Adding a third phase of restructuring -- involving upcoming changes to cut administrative expenses -- Avanex expects to reach positive cashflow (not including restructuring charges) "no later than June 2006," Major said.

"I think this story works from here," says Eric Zamkoff, an analyst with IRG. "They're clearly fueling improved visibility if they're willing to throw out the June '06 date" for being cashflow-positive. Moreover, Avanex claims business is improving, with orders increasing in Asia.

The French restructuring was a long time coming, as it's difficult negotiating layoffs in Europe, but most industry observers were expecting it. "Think of the dollar-euro relationship. Every salary they've got over there [in France] is killing them," said one source at last month's OFC/NFOEC tradeshow.

The three major components firms are scrambling to cut costs by relying more on contract manufacturing, moving their in-house manufacturing to Asia. JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) recently sold some facilities to Fabrinet Co. Ltd., and Bookham Inc. (Nasdaq: BKHM; London: BHM) continues migrating its manufacturing to China. While the moves save cost in the long run, the transition can eat up cash, as Bookham has been reporting recently (see Trimming Continues at JDSU and Components Competition Is Killing).

Avanex's restructuring announcement came in tandem with the company's quarterly earnings release. For its third quarter, which ended March 31, Avanex reported losses of $18.9 million, or 13 cents per share, on revenues of $40.3 million, compared with losses of $24.4 million, or 17 cents per share, on revenues of $41.9 million for the previous quarter.

Analysts had expected losses of 11 cents per share and revenues of $41.2 million, according to Reuters Research. The miss was costing Avanex in early after-hours trading today, as the stock was down 14 cents (11%) at $1.28.

For its third quarter a year ago, Avanex reported losses of $41 million, or 29 cents per share, on revenues of $30.1 million.

— Craig Matsumoto, Senior Editor, Light Reading

Sign In