Zhone Gets a Symbol (and Layoffs)

Zhone Technologies kicks off its first official day as a public company by slashing jobs after buying Tellium

November 14, 2003

4 Min Read
Zhone Gets a Symbol (and Layoffs)

Tellium Inc., the core switching vendor that once raised $135 million in its initial public offering, has all but gone the way of the dodo (see Zhone Makes Nasdaq; Lays Off).

Zhone Technologies Inc. (Nasdaq: ZHNE) announced Friday that it has completed the merger with Tellium and it's cleaning house in Oceanport, N.J., where Tellium was headquartered. The combined company now trades as Zhone Technologies Inc. with a new symbol on Nasdaq -- ZHNE -- replacing Tellium's old stock symbol.

Zhone says it has cut 125 jobs, mostly in Oceanport, and that the remaining employees there will be those focused on developing Tellium's metro optical products.

Satisfying the Nasdaq National Market's listing requirements affords Zhone employees the opportunity of selling their formerly private shares; and the acquisition has resulted in Zhone beefing up its cash position. As of Sept. 30, Zhone had $2.5 million in cash and investments, while Tellium ended the same period with $140.9 million in cash and investments, according to SEC filings.

It's not hard to see why Zhone is cutting staff. The company's nine acquisitions over the years have given it a large variety of access products, but not enough sales to become profitable (see Zhone's Strange Saga). Zhone had accumulated a deficit of $589.3 million as of September 30.

Other interesting details about Zhone have surfaced in recent Securities and Exchange Commission (SEC) filings. This summer, the company borrowed a total of $4 million from its founders, Mory Ejabat and Jeanette Symons. The loans held an interest rate of 12 percent and matured when the Tellium merger closed, according to the filings (see Exec Payoffs Dog Zhone/Tellium Merger).

Zhone's SEC filings state that the company is actively looking for additional capital, but, failing to find it, would start taking actions such as the staff cuts announced Friday. "Management believes that it has sufficient available cash equity and debt resources to provide for its working capital needs through at least September 30, 2004," the filings say.

Meanwhile, Zhone's sales, most of which are concentrated with two customers, are slipping. For the nine months ended September 30, Zhone's revenues fell 32 percent, or $27.9 million, to $59.8 million from $87.7 million for the year-ago period. During that same nine-month period, sales to Motorola Inc. (NYSE: MOT) and Qwest Communications International Inc. (NYSE: Q) represented 18 percent and 12 percent of Zhone's net revenues, respectively.

Even before Zhone's cuts today, the company was shedding personnel at a slow, steady rate. In July Tellium had 177 employees and Zhone had 240. As of Sept. 30, Zhone had cut back to 228, while Tellium had about 165.

One thing that Zhone can't shed as easily as jobs is Tellium's history with Qwest, a big Zhone customer that is the target of two federal fraud cases. Tellium disclosed in its SEC filings Thursday that it is among the eleven companies that the SEC is looking into as the agency tries to determine whether Qwest properly disclosed all of its dealings with its vendors.

Qwest got warrants for agreeing to buy Tellium gear. Qwest executives accepted some $10 million worth of stock options from the startup in exchange for being allowed into its network (see Tellium Lawsuits Allege Rigged IPO). Marc Weisberg, a former Qwest executive, held a board seat at Tellium for a time (see Love Lost for Tellium).

In connection with the criminal charges related to Qwest, Tellium's filings say that the U.S. Attorney has sought information and interviewed its officers. The U.S. Attorney, however, has assured Tellium that it and its officers aren't the targets of the investigation.

Zhone had about 15.7 million shares outstanding as of Sept. 30, its SEC filings show. However, it now remains tightly controlled by insiders. "Our executive officers, directors, and entities affiliated with them beneficially own, in the aggregate, approximately 77% of our outstanding common stock and substantially all of our outstanding preferred stock," Zhone's SEC filings state.

Midway through its first trading day, Zhone shares were trading at $6.80. The stock had ranged in price from $6.70 to $6.90 since the market opened.

— Phil Harvey, Senior Editor, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like