Optical/IP Networks

Corvis Cuts Back

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

Xcited01 12/4/2012 | 8:26:05 PM
re: Corvis Cuts Back This methodology is great! Corvis trims the bottom 15% of its workforce it created is its accelerated growth period over the past year.

It's my understanding the process Corvis created was one in which Corvis has asked employees to Voluntarily fill out an "application" to get laid-off. Once the executives and HR collect all the applications, they then lay-off all the poor-performing employees! Corvis retains the GÇ£AGÇ¥-team while trimming overhead!

Only in America do the losers fall for such a perfect scheme! Dr. Huber Rocks!
iprsvp 12/4/2012 | 8:26:00 PM
re: Corvis Cuts Back http://www.lightreading.com/bo...
They just took care of the point 2 in above message. I hope you do know the next thing: yes!!!
The inventory! They have to write down soon or later!
optinuts 12/4/2012 | 8:26:00 PM
re: Corvis Cuts Back who are the "bottom 15" and why did they get hired in the first place.

why not just say business is down, can't keep payrolls going, sorry, we'll hire you back when things are good. why rub their noses in the sand as well.
seabizkit 12/4/2012 | 8:25:57 PM
re: Corvis Cuts Back Welcome back to the old days of the telecom coster ride, up then down and back up again, ride the light, it's just a photonic coster!!!
why 12/4/2012 | 8:24:22 PM
re: Corvis Cuts Back isn't it hard to reject sbd's "voluntary lay-off
application"? once an employee says he is ready
to go, how could things be the same after you
tell them no.
sonet49er 12/4/2012 | 8:24:22 PM
re: Corvis Cuts Back You have overlooked an important issue in the voluntary retirement.

You must apply for the voluntary lay-offand management will then decide who to accept.

There is no guarantee that they will get 15% of the employees to apply or that the bottom 15% of the workforce will apply. But having worked as an engineering manager in the past I would use performance as a consideration of whose application to accept.
SpliceGoddess 12/4/2012 | 8:24:22 PM
re: Corvis Cuts Back Why assume that the voluntary lay-off applicants are the "low performing" employees.
Maybe they are nearly vested and tired.
Maybe they are taking the opportunity to pursue other avenues in their careers.

The article doesn't say they are asking the poor performers to volunteer. The article says, and I quote the article published in the Baltimore Sun," CORVIS TO CUT 15% OF ITS WORKFORCE"
By making it voluntary they clearly not
pointing a finger at anyone and leaving it up to those who for whatever reason are ready to move on.
DMU 12/4/2012 | 8:24:09 PM
re: Corvis Cuts Back I highly resent the "loser" comment. I'm an employee there and sadly there is no discriminating in the lay off...its a first come first serve policy. Some of our BEST "A" employees have already left as of Thurs and Friday with more to come. Why are they're "losers" they're to begin with? Because they let the WRONG people do the hiring interviews...bottom line. Many of us who are model employees are exactly just what someone else mentioned here...tired and nearly vested. Many of us gain more by leaving than staying. If Dr Huber "rocks" then this wouldn't have happened, or at least not in the way it has. Corvis has the wrong people in the wrong positions...the people making business decisions are PhDs...not business people, where are the MBA's. If you worked there you would see the blunders of some of their spending and hiring. They are a classic sad case of one hand not knowing what the other is doing.
engelhardt 12/4/2012 | 8:24:05 PM
re: Corvis Cuts Back Amen!
After working 16hr+ 6-7days per week for over 2 years some of us are exhausted. I stand by everyone's efforts and have seen primarily world class work and employees. After over 18 years in the industry I can assure you this has been by far the most rewarding and awe inspiring experience of my career, I would never trade the honor. Every company needs to assess on a continual basis, yesterday is not today and tomorrow is always only a crap shoot. I have seen much that if given the opportunity would perhaps be different and much more for which I was given opportunity to voice concern or implement change, because I dared often I was heard. This is more than I can say for most of my 18 years. If nothing else Corvis is a company ready for input and the necessary growth that evolves from it, hurrah! The atmosphere is overwhelmingly positive even in light of the, and I quote, "voluntary" lay-offs. If I am accepted for volunteering today I expect it only a short term affair, as I intend very likely on an eventual return if the company will have me. Corvis is not laying off the bottom 15%, rest assured. They are duly noting the loyalty, efforts and accomplishments of all their employees large and small by offering a very handsome severance package corporate wide. I think this alone speaks not only to Dr. Dave's foresight as an industry leader but his deep understanding, compassion and humanity for the the people who help him along the way. Having worked there and even spoken with him personally I am extremely proud of having been there as I am of honored having met him.
I have all the confidence in this start up company's ability to generate new product the likes this world has never seen and in the eventual turn-up the market will see within the next 24 months expect to find them riding the crest. It is all optical rest assured, I have seen it. The rest are only biding time and you all know it. The contracts will come and aside it the profits, by decades end Corvis should be a household name. Oh sure, I could go into the technical aspect of the company, but first of all that would make it too easy and second, it's nobody's business, is it?
Just a lowly tech.
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