Ciena Slashes Some More
"The telecom equipment market has changed dramatically in the last year and we have to adjust to those changes if we are to maintain our leadership position in the industry," said Gary Smith, president and CEO of Ciena in a prepared statement. "Ciena's future success depends on our ability to adapt the way we think and the way we run our business in this dynamic environment."
This is the third round of layoffs the company has announced in the past six months. In November 2001 it announced it would cut 380 jobs, and in February 2002 it announced it would cut 400 (see Ciena Boosts Numbers, Cuts Jobs). After this latest round, the company will have a headcount of 2,275.
The latest cuts are directly related to the drop in demand from two of Ciena’s main customers, a situation that was announced last month during the company’s first-quarter 2002 earnings call, says Glenn Jasper, a spokesperson for the company (see Ciena: Outlook Dim). Though the company never mentioned which customers had pulled back on orders, the general feeling in the industry is that it was Qwest Communications International Inc. (NYSE: Q) and Sprint Corp. (NYSE: FON).
“The information we received just before our Q1 earnings call certainly has something to do with today’s layoff,” Jasper says. “We realized we just couldn’t support the current headcount based on the new information that was given.”
The layoffs come as no surprise to investors either. At midday Ciena's stock was trading up slightly $0.015 (1.80%) to $8.50.
Some Wall Street analysts said they were happy with the news, because it makes the company leaner in the tough times.
"It’s good to see them making the tough decisions they need to make," says Rick Schafer, an analyst with CIBC World Markets. "Visibility is not improving."
The job cuts are projected to effect $145 million to $155 million in annualized cost savings, including approximately $85 million to $90 million at the operating expense level, prior to restructuring-related charges. Ciena expects that the majority of the cost savings will be in place by its Q3 2002.
Employees affected by the layoff, most of whom reside in the Washington and Baltimore areas, will be paid through May 24, 2002. Depending on tenure, they will also be eligible for additional severance packages and will receive outplacement assistance and training, according to the news release.
For the second quarter of 2002, the company expects to record a restructuring charge between $125 million and $135 million associated with the layoffs, lease terminations, non-cancellable lease costs, and the write-down of certain property, equipment, and leasehold improvements. This is on top of the $9 million to $11 million charge it expects in Q2 for the February job cuts. The company also anticipates a charge of about $200 million to $225 million, related to excess inventory.
But Schafer says that he doesn’t expect the new layoffs to affect the company’s cash burn rate significantly this year, and it lowers the break-even point. Instead of a break-even at around $300 million, Schafer says he now expects it to be around $250 million. He also expects the company to burn through about $50 million in cash per quarter. This, coupled with the approximately $150 million in debt inherited from the Cyras acquisition along with the cash charges for restructuring, mean that the company will likely burn about $400 million this year. But with over $1 billion in cash on hand, Schafer says this is not too alarming.
“Ciena is a survivor,” he says. “And they are trying to make good strategic moves so that when things pick up again they will emerge as an effective player.” One question left still unanswered is what will happen to the roughly 700 employees that work for ONI Systems Inc. (Nasdaq: ONIS). Ciena announced back in February that it would acquire the company (see Ciena and ONI: Wedding of the Year?). Last October, ONI also trimmed its expenses with a 16 percent workforce cut (see ONI Slims Down ).
Jasper would not comment on the merger or what will likely happen to the new employees. As for future layoffs, he says that today’s measure “dramatically lessens the likelihood that we will have more reductions.
“Obviously, we continue to monitor the environment. And we’ll make the decisions we have to make.”
— Marguerite Reardon, Senior Editor, Light Reading