Sycamore Mulling More Cuts?

Some sources say Sycamore Networks Inc. (Nasdaq: SCMR) is ready to make more cutbacks, more specifically layoffs, in order to preserve cash and better prepare to wait out the potentially lengthy telecom slump.

The chatter intensified after Sycamore on Tuesday night warned that its revenues for the quarter ended April 27, 2002, would likely be between $13 million and $14 million, rather than the $17.1 million analysts were expecting. The company says its pro forma net loss for the quarter will be between 10 and 12 cents a share and that its cash burn will be about $23.5 million (see Sycamore Posts Preliminary Q3).

The layoff rumors focus on the fact that Sycamore's headcount has remained relatively unchanged since the end of October 2001, when it employed about 701 people. As of January 26, 2002, Sycamore employed 694 people. Yet between October 27, 2001 and April 27, 2002, Sycamore's revenues seem to have dropped about 36 percent -- from $21.2 million to roughly $13.5 million (see Sycamore: Everybody Hurts).

A gaggle of analysts surveyed by First Call predict that Sycamore will lose about 49 cents a share in 2002 and about 41 cents a share in 2003, assuming there are no layoffs. In order for Sycamore to improve its operating loss for 2003 amid the telecom sector's persistent stagnation, it appears the company would have to make some cuts.

Table 1: Sycamore's Headcount
Date Headcount
31-Jul-99 148
30-Oct-99 228
29-Jan-00 344
29-Apr-00 513
28-Oct-00 904
27-Jan-01 1,071
28-Apr-01 986
27-Oct-01 701
26-Jan-02 694
Source: SEC filings

"Layoffs would allow [Sycamore] to improve its operating loss, and such a move wouldn't be surprising," says Merrill Lynch & Co. Inc. analyst Simon Leopold. However, given how much cash Sycamore has and how tough it would be to make further cuts, Leopold is "not sure that it's a safe conclusion" to assume Sycamore will downsize significantly in the near future.

Sycamore's cash and investments totaled $1.08 billion as of January 26, 2002, with about $294 million in cash and cash equivalents.

The company has already cut about 35 percent of its staff since January 2001, and any further cuts would be problematic. The company's already taken a chunk out of its general and administrative expenses -- the costs needed for operations but not directly associated with product development. Further cuts would likely come from the research and development side, which would cripple the company's future prospects if it cuts too many too fast.

On a more positive note: Sycamore's cash burn, at about $23.5 million, is down significantly from $68 million in the prior quarter. That could be taken as a sign that Sycamore has found a way to curb operating expenses without cutting more jobs.

Sycamore frequently comes up as an possible acquisition for a larger company looking to get into optical switching; for example, the rumor mill recently churned up Siemens AG (NYSE: SI; Frankfurt: SIE) as a potential buyer. Most analysts dismiss that possibility, saying it's more likely that Sycamore, with a significant cash position, would lay off more people and lay low until the market -- and it's stock price -- improved.

CEO Dan Smith and Chairman Desh Deshpande, who remain majority shareholders in Sycamore, have said they are averse to a takeover and prefer to remain independent.

Others point to Sycamore's depressed stock price as making it an attractive acquisition. "While we do not anticipate any fundamental catalyst in the first half to push up the stock, we believe Sycamore remains a potentially attractive takeout candidate at these levels and note that any meaningful customer/sales traction could boost the stock significantly," writes CIBC World Markets analyst Rick Shafer, in a report he sent to clients Tuesday.

Shares of Sycamore were down $0.17 (5%) to $3.21 in midday trading on Wednesday.

Sycamore declined to comment for this story.

— Phil Harvey, Senior Editor, Light Reading
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rickaty 12/4/2012 | 10:29:31 PM
re: Sycamore Mulling More Cuts? I am trying really hard to care about a company with 13 million in revenue and 1 billion in cash.....almost....maybe........nope, can't do it.

Lets see, put the billion in a high yield bond fund and get 5% interest....Net result 12.5 million a quarter.

jamesbond 12/4/2012 | 10:29:30 PM
re: Sycamore Mulling More Cuts? According to the LR article SCMR hired 400
people between apr and oct 2000. is this
a typo or a fact?

Its fu**ing unbelievable.

Outsider 12/4/2012 | 10:29:27 PM
re: Sycamore Mulling More Cuts? According to Sycamore staffing chart in this article, its seems as though they added 900 more people after the company went public.
I believe that Dan and Desh are quite impressive, but who would join a company whose shares were priced at a few hundred dollars per share during the peak of the bubble when all the best engineers wanted to join a young startup?

I am sure Sycamores pre-IPO engineers where good, but the ones that joined later had to be the left-overs in the Boston area. Maybe this is the reason why Sycamore can't compete with either Ciena or ONI.

owl-light 12/4/2012 | 10:29:26 PM
re: Sycamore Mulling More Cuts? Don't forget they bought Scirocco sometime in there. That had to increase the headcount abuptly.

And yea, they did pick up left-overs and yea, they won't be able to compete. Will be lucky to keep going what they have.
optical_IP 12/4/2012 | 10:29:25 PM
re: Sycamore Mulling More Cuts? hi,

any idea how "tejas networks (Bangalore)" (a Desh funded company) is doing ?


jamesbond 12/4/2012 | 10:29:25 PM
re: Sycamore Mulling More Cuts? Its a normal silicon valley disease. After
you become multi-millionaire, one just can't
work hard, stay late etc. All those "good" guys focus on how to invest, buying a house, taxes
etc etc.

inquisitive_brain 12/4/2012 | 10:29:24 PM
re: Sycamore Mulling More Cuts? Yes,
there seemed to be a lot of flutter about the startup (Tejas) an year back. They did bag some good bounties from some Indian ISPs.
Data about the wellbeing of the company is highly solicited
Hosea 12/4/2012 | 10:29:22 PM
re: Sycamore Mulling More Cuts? Base on this situation, some good people resign, or leave company. May, some new, small companys appear after this round.

Will they compete with Sycamore?
lightheart111 12/4/2012 | 10:29:18 PM
re: Sycamore Mulling More Cuts? You guys must be crazy or plain stupid .... the reality of DWDM market today is that no matter how good your product is or how smart you are, THE DEMAND FOR BANDWIDTH SIMPLY ISNT THERE !!.
Now, I am sure though that one you smart ass Nobel laureates can start a systems company and try to sell long haul equipment within the next 2 years.
uttkadae 12/4/2012 | 10:29:17 PM
re: Sycamore Mulling More Cuts? I agree with you lightheart...The market is so bad right now, no one is safe...you might as well stay with a company that has a billion dollars in the bank than with a startup that is begging to get funded...and if you're good at what you do, you might survive the falling axe and ride the downturn with them...
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