Osicom's New Board Game
During Friday's quarterly conference call with analysts and investors, the company took a conciliatory position in announcing disappointing second quarter earnings for fiscal 2001 (see Osicom Announces Q2 Results). In response to intense shareholder criticism last week (see Osicom Investors Rebel), Osicom reconfigured its board, adding Motient Corp.'s chairman and former MCI executive Gary M. Parsons and Susan Mandl, the former Lucent and AT&T executive who's now chairman of ASM Investments.
After a three- to six-month transition period, board members Rohit Phansalkar and Len Hecht, whom investors have criticized for Sorrento's botched IPO, will resign, the company says.
This is an important step for Osicom, as the company appears to have acknowledged that things have not been going well as of late. Shareholders requested Phansalker's and Hecht's resignation just one week ago when Sorrento, the Osicom subsidiary that was on the path to go public, said it would combine with its parent company to form one new entity, which will still be called Sorrento Networks (See Osicom Investors Rebel). The new outfit will give up one of the best stock symbols around, FIBR, to trade under the symbol SRTO.
Of the eight people on Osicom's board now, five are independent directors.
Investors continue to be skeptical about the company's ability to execute on deals, including those it announced in the conference call. Company officials said it has some $520 million worth of non-binding contracts that may or may not turn into future sales.
Osicom's inability to give investors solid guidance in the past has led many to listen to rumors that cast doubt on whether the firm's products work at all.
"I can't find any justification as to how a company in the optical networking sector, where demand exceeds supply, doesn't have solid back-orders and contracts," says Herbert Rodriguez, a senior broker at Bluestone Capital Partners. "You have to conclude that [Sorrento's] product is not as great as they say it is."
Osicom's subsidiary Sorrento counts among its customers United Pan-Europe Communications (NASDAQ:UPCOY), Inrange Technologies, and AT&T Broadband. UPC is an investor in Sorrento, and Inrange president Gregory Grodhaus occupies a Sorrento board seat.
In midday trading Monday, Osicom shares were down $0.56, or 1.56 percent, following the earnings release and the announcement of the board changes.
"It's the confidence factor," says one Osicom shareholder, who asked to remain anonymous. "They have historically failed to listen to what investors want."
It's become apparent that Xin Cheng, Sorrento's CEO, has to build the company’s credibility with Wall Street, convincing investors that Osicom is a thing of the past and its incompetence won’t carry over to the new Sorrento.
"Give me some revenue growth and good earnings, and all that baggage will fall by the wayside," says Joe Gladue, director of research at The Chapman Company.
-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com