Optical/IP Networks

Shareholders Reward Layoffs

The latest round of layoffs at large public companies appears to have coincided with a rally on Wall Street, giving shares of some down-and-out networking stocks a much needed break.

For example, Corvis Corp. (Nasdaq: CORV) announced last week that it had notified 300 workers, or about 24 percent of its staff, that they would be laid off, says a Corvis spokesperson. Cuts were made across all business units.

The news, in addition to a general rally on Wall Street, helped move Corvis stock off its all-time lows. Last week, Corvis’s stock jumped 1.01 (27%) to close at 3.76 on Friday. Today, however, the company gave back some of those gains, as shares fell 0.35 (-9.31%) to 3.41.

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) announced on Friday that it would be laying off 1,000 employees in an effort to reduce its quarterly operating expenses to $180 million by the first quarter of 2002, a 26 percent reduction from first-quarter 2001 operating expenses of $242 million. In the aftermath, its stock jumped 1.85 (10.7%) to close at 17.30 on Friday (see Tellabs Makes Cuts). Today it traded up 0.65 (3.76%) to 17.95.

Last Monday, Corvis rival Ciena Corp. (Nasdaq: CIEN) announced it was laying off 380 workers, or 10 percent of its workforce (see Ciena Boosts Numbers, Cuts Jobs). Its stock climbed throughout the week and has continued to rise today, gaining about 8.88 percent from last Monday’s price of 18.77. Today it rose 1.74 (8.96%) to 21.16.

Sycamore Networks Inc. (Nasdaq: SCMR), which also has a strong cash position, has announced layoffs to reduce its burn rate (see Sycamore Enters Crisis Mode). In October when it pre-announced its quarterly earnings, the company announced a 240 person, or 25 percent, reduction in its work force.

In the case of Corvis, the latest layoffs came as no surprise to Wall Street analysts, who had anticipated cuts after the company’s last conference call. In late October, David Huber, president and CEO, told analysts and investors that the company would be restructuring its business to further reduce its cash burn rate (see Corvis Stock Slips on Q3 Report).

For Corvis and others, it's about preserving cash in a grim carrier spending environment. The company had already made significant headway in reducing spending by cutting its burn rate 46 percent to $57 million from $106 million the previous quarter, but Wall Street seems to want more.

"Honestly, I think that people really want to see them make tough decisions," says Rick Schafer an analyst with CIBC World Markets. "There is a finite amount of cash even for Sycamore and Corvis, which both have huge purses. Cutting back on spending is really viewed positively right now.”

Even though Corvis has $715 million in cash and cash equivalents, Schafer says it's important that the company show Wall Street it's willing to make the tough choices to reach cash-flow positive status, something he doesn’t expect until 2003.

Schafer says he expects more cuts to continue, especially from bigger companies like Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU). Even though these companies have announced massive layoffs already, he says there is still more that can be cut.

”The break-even points are still pretty high for these companies,” he says.

— Marguerite Reardon, Senior Editor, Light Reading
lucender 12/4/2012 | 7:32:50 PM
re: Shareholders Reward Layoffs Private companies have been doing this to get the investors to give them more time (or rope). Ennovate bought time this way, but didn't do much good. We'll see how Coriolis does.
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