Tut Tightens Belt in Tough IPTV Space

Tut Systems Inc. (Nasdaq: TUTS) is slimming down to fighting weight to better compete in the promising yet ultra-competitive IPTV equipment space. (See Tut Restructures, Reduces.)

The Lake Oswego, Oregon-based video headend company Monday warned of pale first-quarter results and says it has implemented a restructuring plan that will include a "modest" workforce reduction.

Tut also says CFO Randall Gausman has left the company and has been replaced by corporate controller Scott Spangenberg.

At the bottom of all this is a bottom line that hasn't improved much over the past year. Tut says its net loss for the first quarter will be $3.1 million, or 9 cents per share on revenues of $11.5 million. That's compared with a net loss of $3.3 million, or 13 cents per share, on revenues of $7.1 million in the first quarter of 2005.

"In every link of the IPTV value chain, multiple companies are competing for mindshare and the headend space is crowded," says IPTV consultant Steve Hawley of Advanced Media Strategies. "But MRG Research identifies them as the IPTV headend market leader," Hawley says.

"Tut is facing a lot of pressure right now," Hawley says. "Competitors include Harmonic, SkyStream (Tandberg TV); and of course Scientific Atlanta (Cisco) and Motorola have made some announcements with the Tier Ones." (See Report: Tut Tops IPTV.)

Like its competitors, Tut would like nothing more than to ink some deals with large Tier 1 telcos, but Tut marketing director Keith Wymbs says his company's future doesn't necessarily depend on it.

“We don't assume Tier One business; we don't bank on it,” Wymbs tells Light Reading. "We know we have to have a sustainable business model without it, but over time that's where the big growth is."

Wymbs is quick to point to the positives in Tut's first-quarter results -- that revenues actually grew 65 percent over last year's first quarter. The company hopes its belt-tightening initiatives will allow more of that money to hit its bottom line.

Wymbs says the headcount reduction part of the plan is already under way and will affect less than 10 percent of the workforce.

"It’s an all-encompassing cost reduction," Wymbs says. "We’ve looked at basically everything over the last quarter and come up with a plan based on what we've told the Street that we're going to do."

Tut believes its restructuring plan will result in a cost savings of about $3 million during 2006.

In the wake of the sour first quarter numbers, Tut stock closed down only 1.67 percent at $2.94 on the Nasdaq Monday.

"We are confident that the continuing growth in the IPTV market worldwide and our restructuring plan implemented this quarter positions us well to be EBITDA positive in the second half of 2006," said Tut CEO Sal D'Auria in a statement.

Tut makes video encoders and other video processing components for headend systems operated by telephone companies, large enterprises, and government agencies. (See Tut Shows MPEG-4 and Who Makes What: Telco Video.)

— Mark Sullivan, Reporter, Light Reading