Optical/IP Networks

Black Friday: More Layoffs Loom

Grim reaping continued to savage the telecom industry this week, as several large companies reported significant layoffs, and startups sent up signals of woe.

Today alone, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7), and Ciena Corp. (Nasdaq: CIEN) announced current or pending workforce reductions (see Ciena Cuts 450 Jobs, Alcatel to Cut 10,000 More Jobs, and Avici Lays Off 75).

"The stability we had been looking for -- and I was more bullish than consensus -- is clearly not here," says analyst Steve Levy of Lehman Brothers.

So the cuts continue. In today's news, Alcatel has the highest tally, with an estimated 10,000 staffers set to lose their jobs due to "further deterioration of telecom markets." Stringent European labor laws mean the cuts must be worked out with individual employee organizations, so there's no specific timetable or geographic area Alcatel can pinpoint now. "We have an idea where cuts will be made, but we can only announce something after it's written in stone," says spokesman Klaus Wustrack.

One place Alcatel's already announced layoffs is within its optics business segment, Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA), which announced severe cuts September 17 (see Alcatel Optronics Cuts Back Hard).

Ciena's workforce reduction was anticipated by Light Reading sources earlier this week (see Ciena's K2: What Problems?). The company has cut 17 percent of its work force, 450 employees, leaving a census of about 2,197. Spokesman Glenn Jasper says roughly 65 percent of the cuts were made in the Baltimore/ Washington area, in and around company headquarters. While the cuts were made across all departments, he acknowledges that manufacturing, sales, services, general and administrative, and marketing were hardest hit.

Jasper couldn't provide information about specific properties and locations that may close as a result of further consolidation. But he says Ciena's not shutting down any product areas, such as development of its MetroDirector K2, the topic of much discussion: "We support all our product lines." While cuts may occur in particular product areas, he says that's not a sign of lack of support for a product's future.

Avici's reduction of 75 employees -- 24 percent of about 312 total -- is also "pretty much across the board," according to spokesman Paul Brauneis. "We think we've cut to a level so as not to be in the bone." Still, last fall, the firm had about 400 employees; after today, it has 240.

And today's news is just part of a grim reaping that shows no sign of abating. Other layoff announcements have recently been issued by JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU), Lucent Technologies Inc. (NYSE: LU), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), to name a few (see Component Closures: Trouble Ahead?, Lucent Drops Its Bottom, and Tellabs Lays Off, Warns).

Startups also are hurting, even the ones that apparently have been well funded. After garnering $17 million in funding in March (see Siros Gets $17 Million in Funding ), VCSEL maker Siros Technologies Inc. (Website's up, but it's a phantom) has closed its doors, according to a source familiar with the situation. Equipment maker Mahi Networks Inc. acknowledged it laid off about 10 percent of its staff early in September, although the company has just received sizeable funding (see Mahi Gets a Fresh $75M). At press time, calls to confirm rumors of layoffs at IP router startup Hyperchip Inc. went unanswered.

And there are likely more layoffs in the works, particularly as earnings season looms. In a note yesterday, analyst James Jungjohann of CIBC World Markets wrote that he expects "major restructuring to emerge" from Corning Inc. (NYSE: GLW), including layoffs as deep as 50 percent of the current workforce.

Alcatel, Avici, and Ciena all declined to say they'd reached the limit of layoffs.

Who or what's to blame? Where will it end? There seem to be many answers -- and plenty of blame to go around. Some analysts point fingers at the regulatory climate, others at the market balloon of 2000, which has not only burst but continues to bleed forth corporate scandals.

One thing is clear: The timetable for recovery is still a question. "What we're seeing are [companies] throwing in, if not the whole towel, then good portions of the towel, in finding a way to grow back to profitability," says Levy (emphasis added). "A spending increase? 2004 now looks more likely than the latter part of 2003."

— Mary Jander, Senior Editor, Light Reading

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