Agere's Musical Chairs

Tough times call for tough measures. That much was evident from Agere Systems (NYSE: AGR) earnings call yesterday (see Agere Reports, Reorganizes).

Not only did the company post a loss of $375 million, or 23 cents a share, it also announced a new phase in its restructuring plan that will see the number of sites it occupies in the U.S. cut from nine to two, and a further 1,400 workers removed from the payroll. Virtually no employee at the company will be unaffected by the reorganization.

The financials seem pretty bad in light of the fact that Agere was in the black this time last year with quarterly revenues of $1.36 billion. Now its quarterly revenues are down to $537 million, as demand for its components has dried up. And with the industry downturn expected to last a while yet, Agere is orchestrating a strategy that will allow it to break even on only $700 million of quarterly revenues.

The company has already cut thousands of jobs and sold off several facilities, including its FPGA (field-programmable gate array) business, which went to Lattice Semiconductor Corp. (see Lattice to Buy Agere FPGAs).

Now it intends to consolidate its locations, by combining the integrated circuit and optoelectronics manufacturing operations in Reading and Breinigsville, Pa., into its Allentown, Pa., facility. It also plans to move about half of its New Jersey product development workforce, which is currently in multiple locations, to Allentown. "This will allow us to optimize design and manufacturing synergies and more rapidly introduce integrated solutions to the market," said Agere's CEO John Dickson, in a prepared statement.

The remaining research and development workforce will be consolidated at a new location somewhere in central New Jersey.

More than 2,700 workers will be affected in Pennsylvania, and about 300 of them will lose their jobs, as they fail to find a chair to sit on in the new locations.

Agere is also seeking a buyer for its Orlando, Fla., plant, which makes CMOS chips for a variety of applications, including networking. The plant will be sold as a going concern, with the hope that its 1,100 employees will move with it. The company has already been in talks with potential buyers, it says.

At the end of the consolidation, Agere will total approximately 10,000 employees, down from its peak of 18,500. And it will occupy only two million square feet in the two states, down by about 50 percent.

Of course, stockholders like layoffs and consolidation because they reduce burn rate. And they reacted in the same way as they did when Agere announced 4,000 job cuts back in June 2001, sending the stock up initially (see Agere's Good Bad News).

But while the measures will cut the burn rate in the long run, how soon will those effects be felt?

Analysts, including Jim Jungjohann of CIBC World Markets, think that Agere will meet its target to break even at $700 million quarterly revenues, but not before 2003. He rates Agere as a Buy.

But company executives seemed less sure. "I really can't say when we will see the cost savings from restructuring," they said on the conference call yesterday. "It depends on how fast revenues ramp and how quickly we get through the process of restructuring."

Nor would Agere's management team rule out the possibility of further cutbacks if things failed to pick up.

Agere's parent, Lucent Technologies Inc. (NYSE: LU), which owns 58 percent of Agere's stock, earlier this week reiterated its commitment to the spinoff (see Can Lucent Make It?).

— Pauline Rigby, Senior Editor, Light Reading
HarveyMudd 12/4/2012 | 11:02:01 PM
re: Agere's Musical Chairs The same arrogance and ignorance that permeates through Lucent management os also seen at Agere. The company will not be able to make on its own. There is not not much work ethic within the company. It takees a lot of time to bring out the product. There is no accountability within the company.

Marketing and intense sales activities are not very efficient.
lillylu 12/4/2012 | 11:01:57 PM
re: Agere's Musical Chairs I don't know where you are getting your (mis)-information from H. Mudd. You say that there is no work ethic at Agere. Most of the people I work with are on the workaholic end of the spectrum. Those of us that are left have a very strong work ethic. Also, there is still a large core of talented engineers and technicians that remain from the people that made optoelectronics into an industry. Why do you think that during the boom times of 1999-2000, Breinigsville was the prime recruiting spot for every startup and major components company in the industry?
There is accountability, certainly in the trenches. The old Western Electric or AT&T mentality and style is long gone. If you don't produce or your project doesn't work, or get to market on time, you won't be here long.
Maybe we don't post know-it-all blowhard messages often on these boards much because we are too busy working!
As for arrogance, it's hard to be arrogant when you have lost half of your co-workers in the last year or so.

- L
R.J. Squirrel 12/4/2012 | 11:01:43 PM
re: Agere's Musical Chairs I for one don't dispute the quality or commitment of Agere's workforce. But as one of their (potential) customers, I've seen very little action from their sales side. Since they dumped their distributors, and went it alone, Agere has dropped out of my sight. No contact at all - and we were in negotiations to use some of their chips in our designs. Perhaps my company isn't big enough for them, but I don't see that they can afford to pick and choose where to get their traction - you gain speed pretty fast going down that slippery slope.
sailor 12/4/2012 | 11:01:37 PM
re: Agere's Musical Chairs Agere is reducing headcount, but not where it really needs to. Its management. Until it sheds itself of the old Lucent/AT&T Microelectronics types there will be no real change in Agere.

Good luck Agere in getting the right people who could change the company to relocate to Allentown.
edgecore 12/4/2012 | 11:00:45 PM
re: Agere's Musical Chairs test 1-2-3-4
edgecore 12/4/2012 | 11:00:45 PM
re: Agere's Musical Chairs test
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