Corvis Corp. (Nasdaq: CORV) is delivering on its promise to streamline its operation and cut expenses (see Corvis to Trim Workforce). This morning the company announced a voluntary layoff program targeting approximately 250 of its 1,625 workers. The 15 percent reduction in workforce is part of Corvis’s plan to slash its ballooning operating expenses.

"On the conference call, we talked about streamlining the business," says Andy Backman, director of investor relations for Corvis. "We thought it was important to have a voluntary comprehensive program as part of that.”

Corvis is working hard to entice its workers toward the egress. In addition to severance, the company is offering accelerated vesting and reduced strike prices for exercising options. Backman declined to give specific details of the packages, but he says employees have multiple plans to choose from. Only workers in the U.S. are eligible for the program, he adds, and senior executives are excluded.

Just how much will Corvis save? “It depends,” says Backman. "We’re going to take a look at how the program goes. People are just starting to weed through the different packages to understand them right now. We’ll evaluate participation over the next days and weeks.”

In its latest quarterly report, which was filed with the Securities and Exchange Commission last Friday, the company reported $145 million in operating expenses and $84 million in revenue for the quarter ending March 31, 2001. Over the past year, those expenses have gone up dramatically from $28 million for the same period a year ago.

“The company is still in its early stages of development,” says Rick Schafer, a research analyst with CIBC World Markets. “So I wasn’t too concerned about their spending.”

But market conditions have changed. Not only is Corvis feeling the pain from a reduction in carriers' capital spending, but, as CEO David Huber pointed out during the company’s last earnings conference call, it is also feeling pricing pressure from bigger players like Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU), which are slashing prices to compete in the long-haul transport business (see Corvis: No New Customers). As a result, Corvis has publicly stated that it will be reducing its operating expenses by at least $50 million from what analysts had first projected. This would put them in the $200 to $210 million range, versus a predicted $250 million, says Backman.

“This is a very difficult thing for the company to do,” he says. “A lot of people have worked hard to make Corvis what it is today. But it’s necessary to reduce our spending, given the current environment we’re in.”

The layoffs are just one part of a larger plan to reduce these ballooning operating expenses, adds Backman. The company is also looking to consolidate its U.S. offices and facilities. And it is working to better manage its component supply chain to reduce costs even further.

Analysts were not surprised by the news. And the Street barely acknowledged it, as Corvis’s stock dipped only about 3.5 percent to trade at $7.16. Its competitors, Ciena Corp. (Nasdaq: CIEN), ONI Systems Inc. (Nasdaq: ONIS), and Sycamore Networks Inc. (Nasdaq: SCMR), also suffered minor losses.

“I think this is a must, given the rapid erosion in the market conditions for long-haul optical,” says Alex Henderson, an analyst with Salomon Smith Barney. “If you look at the revenue assumptions being made last year versus where they are today as a result of the the sharp fall in capital expenditures for this year and again in 2002, it is setting up very difficult market conditions for Corvis.”

While Corvis has still not announced any new customers, it finally revealed the amount of its latest contract with Qwest Communications International Corp. (NYSE: Q). In the 10Q filed on Friday, the company said it had received a commitment from Qwest to buy $110 million worth of transmission and switching equipment with shipments expected during fiscal 2001.

The original Qwest deal was announced at $150 million over two years for equipment to build a point-to-point network, but the new agreement with Qwest is more comprehensive and could involve the sale of more products (see Qwest to Build National Net With Corvis). This is positive news, since the company hasn’t announced any new customers in the past several months. Its current contracts with Broadwing Communications Inc. (NYSE: BRW) and Williams Communications Group (NYSE: WCG) have almost been exhausted as those providers have nearly completed their optical buildouts.

- Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com