Cable Tech

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

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ericidletone 12/4/2012 | 11:15:18 PM
re: Zhone Gets a Symbol (and Layoffs) Ha! Nice one. As a shareholder, I hope you're wrong. As a telecom worker, I hope you're wrong too. But Zhone has quite a few cards up its sleeve. They have a competitive PON system in the labs, a pretty good digital video story (always the technology of the future..) and a half decent DLC/DSLAM product. We've all commiserated about they way in which they discard staff at the slightest provocation, waste money by purchasing technologies which they then discard, piss off vendors, and ship too early, but that's pretty much SOP in telecom these days. By raiding Tellium for cash (and that's all this was, a cash play - I don't think Zhone wants to play in Metro at all, but hey I've been wrong before) they've extended their life past the big dip and possibly into the capex upswing. They've eliminated plenty of their competition by buying and scrapping them, and are now positioned to raise capital on the street. If Mory's legacy at Ascend is any indication, he'll be able to cash in 10x from Wall Street what he's alreay taken from the VCs. I'm not saying that ZHON is a cash cow, but it's far from obvious that the company is worthless. I'm not selling a 6.70, that's for damn sure.
realdeal 12/4/2012 | 11:15:18 PM
re: Zhone Gets a Symbol (and Layoffs) Why is the stock NOT at $0 per share? With a pending criminal suit, SEC investigations and not to mention the company running out of $$ 9/2004, how can the stock possibly hold any value?

The entire Tellium "merger" has me quite confused.
TELM would not have run out $$ 9/2004 and TELM had the lions share of the cash on hand.

Someone is making out like a criminal and someone is getting porked rather badly.
firstmiler 12/4/2012 | 11:15:16 PM
re: Zhone Gets a Symbol (and Layoffs) Where is Zhone making headway:

I don't ever seem to hear of major deployments. They sure have nice buildings just off 880 though!

ericidletone 12/4/2012 | 11:15:15 PM
re: Zhone Gets a Symbol (and Layoffs) They have deployements in Ireland (BT?), Equador,
QWEST, and some IOCs in the midwest AFIK. Possibly more, not too much 'in the loop' over there these days.
digerato 12/4/2012 | 11:15:15 PM
re: Zhone Gets a Symbol (and Layoffs) "They have a competitive PON system in the labs, a pretty good digital video story (always the technology of the future..) and a half decent DLC/DSLAM product..." + lots of other product stuff.

Great, so they have a bunch of technology but not much in the way of actual paying customers. And the one big one they do have was obtained in return for big option grants to its executives.

Hearing of technology in search of a customer is becoming a drag.

bud1tig2 12/4/2012 | 11:15:14 PM
re: Zhone Gets a Symbol (and Layoffs) It's easy to see why the stock price is what it is since 77% is owned by insiders. I'm sure if it were 77% outside investors it would be zero.
uknow 12/4/2012 | 11:15:13 PM
re: Zhone Gets a Symbol (and Layoffs) 150M...end up with only 40M left...We could tell that Tellium executives get a nice bonus - not to pay off the loan..and Zhone could extend its life though the "dump" investors who vote yes on the MERGE.
techoriginol 12/4/2012 | 11:15:13 PM
re: Zhone Gets a Symbol (and Layoffs) Once again Mory and his spinster sidekick decide to destroy a company. Does anyone honestly believe that Zhone is interested in furthering the
optical switching product line or in eliminating the competition by buying the company. Zhone's only interest is in sucking up Tellium's surplus cash, fooling the VCs into believing that this company is healthier than it is, and suckering the
investors into buying this crap at $6.50 a pop. Anytime Mory spits jobs get lost, product lines get destroyed, customers don't come, investors get fooled and of course he gets richer. Ethics or morals? - Heck, loan sharks have more.

I don't see how any NASDAQ investor would want to add additional capital to this losing company and actually shell out $6 or $7 dollars for this worthless stock.

This is one company that should be investigated with a fine tooth comb. Zhone, what a disgrace to the Engineering profession. And this is just my humble opinion.
BobbyMax 12/4/2012 | 11:15:09 PM
re: Zhone Gets a Symbol (and Layoffs) It is very strange that Zhone Technologies would buy but Tellium for the sole purpose of going public without accountability. It is not clear if Zhones can make any money out of Tellium.

Zhones future is in doubt considering its staggering loses. It is questionable how buying Tellium improves Zhone's business prospects. Quests investgation of Zhones is not going to sit well with the buyers of its products.
morye 12/4/2012 | 11:15:07 PM
re: Zhone Gets a Symbol (and Layoffs) Phil keeps on going back and forth about total current assets and cash in a convoluted way. The relative comparisons are very hard to decipher. As of september the cash position was 2.5million compared to 1.9 the previous quarter. I am not sure what purpose emphasizing the $41.5 million september total current assets serve, because that includes account receivables and inventories. Furthermore the september filing does not contain any post merger balance sheet.

Zhone is a time to market company. They will not mis a step if the opportunity presents itself. Mory and Janette are classic over achievers. This is well known throughout the industry and lack of red tape in development makes them the strategic partner for all telecom service providers who want results fast.

I know because I worked for the man......
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