Optical Scythe Continues to Swing
“A few months ago, my sense was that the slowdown would last a few quarters and that by end of the year we would have hit bottom,” says Michael Howard, principal analyst and co-founder of Infonetics Research Inc. “Now, I’m not so sure.”
Yesterday, during its quarterly earnings call, semiconductor and test equipment maker Agilent Technologies announced it was laying off 4,000 workers (9 percent of its workforce), the first major layoff the company has announced since the economic downturn started (see Agilent Post Results, Cuts 4,000 Jobs). Traditionally, Agilent, which was spun out of Hewlett-Packard Co. (NYSE: HWP) in 1999, has done everything possible to avoid layoffs. Earlier this year, the company announced it would cut salaries by 10 percent, a measure that worked back in 1985 when the company faced a similar market downturn, says Cindy Shaw, an analyst with Salomon Smith Barney.
While Wall Street had already lowered its expectations for Agilent before yesterday’s call, the company surprised everyone with even lower-than-predicted earnings plus lowered guidance going forward. The company reported that sales had fallen 23 percent to $1.81 billion from $2.35 billion and that orders had fallen more sharply than expected, sinking 54 percent to $1.32 billion from $2.35 billion.
Ned Barnholt, CEO of Agilent, told analysts on the conference call that this downturn was the worst he had seen in his 34 years with Agilent and Hewlett-Packard. He went on to say that Agilent's outlook is for a "slow and gradual recovery." (He didn't need to add the usual word, "painful.") Job cuts were necessary to bring the size of the company's work force in line with reduced business levels, he said.
“Clearly, management is saying that the 10 percent salary reductions weren’t enough,” says Shaw. “They seem to think that they need to get the headcount worked out. Layoffs are never a good thing, but sometimes it’s necessary, especially during a huge market correction like this one.”
Agilent stocks dipped to an all-time low this morning, dropping to $24 per share before the stock market opened today. It traded as low as $24.30 during the regular Nasdaq session before recovering. The company was up 0.17 (0.65%) to 26.26 in late afternoon trading.
Agilent isn’t alone in its layoff news. This morning Fujitsu Network Communications (FNC), a subsidiary of Fujitsu Ltd. (KLS: FUJI.KL), a $45 billion company, announced it was laying off 500 workers or 15 percent of its workforce. Approximately 200 people in the Dallas area will be affected, where more than 2,400 people are employed, according to the press release issued this morning (see Fujitsu Fires 500).
This news comes one day after its parent company in Japan announced it would be cutting 16,400 of its roughly 180,000 employees worldwide. FNC, headquartered in Richardson, Texas, is a major division of Fujitsu Ltd., focused specifically on the optical telecom market. FNC employs more than 3,500 employees and generated more than $2.6 billion in revenue in fiscal 2000.
“This is a real sign of the times,” says Howard of Infonetics. “The Japanese are known for trying to retain people even through hard economic periods, but even they are having to face the reality of the harsh market conditions and react accordingly.”
Startups are also still being hit by the economic slowdown. The latest victim: Metro-Optix, a small startup developing a metro aggregation switch that handles Sonet/SDH, ATM, IP, and DWDM traffic. Kris Shankar, vice president of marketing and business development for Metro-Optix confirmed yesterday that the company is laying off 36 of its 300 employees, a 12 percent reduction in its workforce. This in spite of the fact that last month the company announced $50 million in third-round funding, bringing the total it has raised to about $103 million.
"While Metro-Optix has been successful in its recent round of funding, it is not immune to business cycles,” says Shankar. ”As a consequence, we have to right-size the organization to support immediate needs.”
It’s a familiar story heard from many startups, including Ellacoya Networks Inc., Optical Micro Machines Inc. (OMM), and Geyser Networks Inc., just to name a few.
“Metro-Optix is in some large carrier labs, but they haven’t generated any revenue,” says Howard. “Right now, they’re in a situation where they need to make their cash last as long as they can. They have to maximize their survivability, and that sometimes means letting people go in order to conserve cash.”
In total, the layoffs this week are just a drop in the bucket compared to layoffs at large companies like Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT), which have each sent roughly 30,000 workers home with pink slips, or JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), which has cut about 15,000 jobs. According to a Light Reading report updated earlier this month, the total of laid off workers in the industry is more than 130,000 since the beginning of the year (see Grim Reaping: A Downturn Tally).
The big question now is when will the layoffs end?
“I think that many technology sectors like semiconductors have already hit the bottom. We should see some improvement by the end of the year,” says Salomon Smith Barney's Shaw. “But others like the communications sector are going to have a longer, bumpier road to recovery. They seemed to be the ones that got drunk and partied harder on Wall Street money than anyone else, and as a result their hangover will last a lot longer.”
- Marguerite Reardon, Senior Editor, Light Reading