Cheng Out at Sorrento

The last of the Osicom managers is shown the door as Sorrento's board takes over

March 5, 2002

3 Min Read
Cheng Out at Sorrento

Sorrento Networks Corp. (Nasdaq: FIBR) has ousted Xin Cheng, its founder, chairman, and CEO. The company said Monday that Phillip Arneson, a Sorrento board member since January 2001, has replaced Cheng (see Sorrento Names Head Honcho).

Though this is a high-profile change, it is not an entirely surprising one. Sorrento, which was spun out of Osicom Technologies , has a long record of management reorgs (see Sorrento Mum on Revenue Outlook and Osicom Prepares for Transformation). Cheng founded the Sorrento division of Osicom back in 1995 and served as president and director of Osicom from 1995 to July 2000.

"The board of directors felt that it was time for the company to change leadership and adopt a slightly different approach," says Demetri Elias, Sorrento's VP of marketing. "Dr. Cheng was known in the industry for being an innovator and laying down the foundation of the company. [Arneson] is more focused on business fundamentals and making sure the company is run right."

Closer to Wall Street, investors are cheering the move. "This is encouraging. I think the board has high hopes for the company now," says one bondholder, who spoke on condition of anonymity.

During Cheng's tenure at Sorrento, the president and chief operating officer post was in constant flux. Observers blame Cheng's reputation for micromanaging executive staff. In October 2001, Arneson replaced Jim Dixon as Sorrento's president and COO. Dixon had been at the company for only one year.

Dixon’s predecessor was Oren Shaffer, a former Ameritech executive, who came in as Sorrento's president in March 2000 and left in September 2000.

As far as its business is concerned, Sorrento still has some marquee customers -- including Deutsche Telekom AG (NYSE: DT) and Cox Communications Inc. (NYSE: COX) -- but management upheaval appears to have kept it from delivering consistent financial results (see Sorrento Signs Up Germans and Cox Deploys Sorrento).

Arneson's last optics-related job was when he helped restructure Amphenol Interconnect Products Corp., then an Allied Signal subsidiary. He may help Sorrento continue to cut costs. Indeed, one of his first acts as president and COO was to cut the company's staff by 20 percent, last December (see Sorrento Reports on Q3).

Sorrento now employs about 220 people, according to Elias.

Arneson may help improve Sorrento's financial situation, but his technology leadership in the optical-systems business is unproven. However, Sorrento's prospects brighten each time the company takes a step away from the old Osicom regime and toward employing outside executives and directors with scandal-free pasts.

During the nine months ended October 31, 2001, Sorrento reported that it lost $32.7 million on revenues of $32.6 million. Four customers represented about 80 percent of its sales for the three months ended October 31, 2001, according to Sorrento's filings with the SEC.

Sorrento's December 6, 2001, restructuring even prompted Chapman Co. analyst Joe Gladue, a longtime Sorrento cheerleader, to downgrade the stock to Hold. Gladue had rated the stock a Strong Buy on May 30, 2001, when the stock was trading at $10.30; on August 7, when the stock was trading at $7.81; and on August 24, when it had dropped to $4.76.

Sorrento shares closed at $3.05 in Monday trading. In late afternoon Tuesday trading, shares had climbed $0.18 (6.2%) to $3.23.

At the Optical Fiber Communication Conference and Exhibit (OFC) and CeBIT, Sorrento will demonstrate its JumpStart CWDM product (see Sorrento Unveils CWDM Platform). The company will show the box transporting OC48 and video signals via Gigabit Ethernet over two different fiber types. Sorrento will have its GigaMux metro DWDM platform on display as well.

— Phil Harvey, Senior Editor, Light Reading
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