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Turkey Awards

Column
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11/27/2003
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In commemoration of Thanksgiving Day in the United States, Light Reading editors introduce the second annual Turkey Awards -- for the biggest telecom industry howlers of the past year.

Last year, Bernie Ebbers and WorldCom Inc. took top honors (see Turkey Awards).

Here's this year's line-up:

No. 1: Deal Turkey

Talk about stuffing your face. Zhone Technologies Inc.'s (Nasdaq: ZHNE) reverse merger with Tellium Inc. (Nasdaq: TELM) may well set a new standard for the destruction of capital (see Zhone Gets a Symbol (and Layoffs)).

A quick glance at the numbers reveals this to be a merger of companies amazingly adept at losing money (see Zhone's Strange Saga and Zhone Cashes In on Tellium). Zhone has never made a penny in profit, and has burned through more than half a billion dollars in capital. Tellium, which held an IPO in 2001, raised $120 million at the time, and then raised more capital in follow-on offerings, but also never earned a profit. Tellium executives took home more than $10 million on the deal, according to Securities and Exchange Commission (SEC) filings, even though the company never earned a dime of profit and quarterly revenues were rapidly heading toward zero (see Exec Payoffs Dog Zhone/Tellium Merger and Zhone Forgives Exec Loans).

As if that wasn’t enough, let's look at how much cash Tellium had before the deal went through: about $160 million. Zhone held only $2.5M in cash at the end of the third quarter, according to SEC filings. Why would Tellum agree to such a deal?

Zhone now trades on Nasdaq, and Tellium's essentially gone, as Zhone has laid off most of its employees. What about the new Zhone stock? Given both companies' records for chewing up cash and the fact that Zhone insiders can now finally sell their stock publicly, we wouldn't expect this turkey to fly.

Turkey Points:


No. 2: Company Turkey

Riverstone Networks Inc. gets a Turkey award for having a generally clucked-up year. It started with some weak numbers (see Riverstone Disappoints the Street), then tried to help things through a deal with Marconi (see Riverstone Hitches a Ride With Marconi).

Things went downhill from there, as its revenues, stock price, and employees started to fly the coop. The stock took a big hit in April when the company ran afowl of the SEC (see SEC Calls on Riverstone). Then it caught the Asian flu (see Riverstone Ailing in Asia). By June, its stock had fallen so low that it was facing delisting by Nasdaq (see Riverstone Branded 'E' by Nasdaq). In July, it began a restatement of its accounting (see Riverstone Readies Restatement), but a month later it had to raise the numbers it was restating (see Riverstone Oops! Level Rises). Nasdaq delisting followed (see Nasdaq Delists Riverstone). Then it got into a fight with some investors over debt payments (see Riverstone in Debt Dustup).

What's next? Who knows. Riverstone stock, floating in the finance limbo of over-the-counter exchanges, recently changed hands at about $1 per share.

Turkey Points:


No. 3: Overstuffed Turkey

Excessive CEO pay is nothing new, but it's still disturbing to see some of the numbers that pop out. After stepping down from 16 months as Corning's CEO, John Loose picked up more than $10 million in compensation, including $6 million in salary and another $4.5 million in a "settlement agreement", according to SEC files. Corning even purchased Loose's house and is handing him $925,000 per year in pension. (See Corning's Ex-CEO Bags Over $10M.)

It's no wonder some folks are up in arms about executive pay (see No Nun Bashing at Cisco).

Turkey Points:


No. 4: P.R. Turkey

It seems that every few weeks or so, a public relations professional gets his or her feathers ruffled over something not worth fighting about.

In this case, an esteemed PR professional from Redback Networks Inc. (Nasdaq: RBAK) was angry that we could assign a negative spin to a bankruptcy announcement (see Redback Closes a Chapter). He wrote:

    "You can probably imagine our disappointment over your recent coverage of our corporate announcement yesterday. Of all the coverage we received -- from the Wall Street Journal to CNBC and numerous newspapers and wire services, the Light Reading article was by far the most negative and the one with the least amount of content devoted to the real issues and implications of the announcement. It seems to have been an effective excuse to spew as much negative commentary as possible and take a truly vindictive approach towards covering the company."


You see, in Redback's PR department bankruptcy is considered a good thing. Well, it might well be for Redback (see Redback Goes Chapter 11). But ask those investors who have their equity wiped out what they think.

Which brings us to yet another message, sent to us by somebody claiming to be a Redback sales executive:

    "Well guess what Phil? Redback is not bankrupt!! Yes, it did file for bankruptcy protection, but bankruptcy protection and bankruptcy are very much different. If you are going to continue to berate Redback in the future, at least get the facts straight."


This message really put our fact-checkers in a panic. Chapter 11 bankruptcy doesn't mean bankruptcy? Then perhaps "organizational restructuring" doesn't mean layoffs, either? And what if "revenue restatement" doesn't mean "massive fraud"? Fortunately, a visit from the SEC fairy assuaged our fears.

Turkey Points:


No. 5: P.R. Turkey, Part II

Hey –- it's Redback again! What a crack PR team. Redback, two seconds before everyone in the U.S. empties their brains for the July 4 celebrations, puts out a depressing financial release... but this Turkey warbled just a little too loudly, and the sensitive ears in our London office caught it:

Redback Sneaks Out Gloomy Forecast

Wait... are we spinning this too negatively? What we really mean to say is that that this company has a brilliant PR strategy. Think about it, they take their positive news and get the maximum impact by pushing it out on the eve of our national holiday! Maybe they should have filed for bankruptcy on New Years Eve?

Turkey Points:


No. 6: Fat OSS Turkey

Give a big fat warble to Schlumberger Ltd., which has now decided to return from whence it came -- the oil services industry -- following its disastrous foray into IT and telecom.

The French firm bought Sema, an IT services and billing software firm, for a whopping $5.2 billion in 2001, just as the telecom bubble was bursting. It ended up unloading most of it onto Atos Origin for $1.5 billion in September (see Schlumberger Billing Biz in Limbo).

Note the "most of it." Atos didn't want Sema's billing software division, and Schlumberger appears desperate to be rid of it. "We'll consider anything that makes sense," says a spokesman. "A sale, a joint venture deal, an IPO...."

An IPO for a flagging, loss-making billing software business? Pardon us while we smirk.

Turkey Points:


No. 7: Startup Turkey

Ceyba Corp.: $90 million, up in smoke. See Ceyba Shuts Down for the ugly details.

Turkey Points:


No. 8: Bait-and-Switch Turkey

Talk about a softswitch. Lucent had an on-again, off-again plan to develop its softwitch. While it was waffling, the market was developing. See Lucent Performs Softswitch U-Turn.

Can you say "missed opportunity"? By being indecisive, Lucent may have left a lot of turkey on that bone.

Turkey Points:


No. 9: Revolving Door Turkey

ADC has had three different people in charge of its "strategic" OSS division in a matter of months (see ADC Loses Another OSS Boss). That’s one fowl management strategy.

Turkey Points:


No. 10: ITU Telecom Turkeys

LM Ericsson (Nasdaq: ERICY) and Siemens AG (NYSE: SI; Frankfurt: SIE) didn't exhibit at last month's Telecom World 2003 tradeshow -- but their subsidiaries from Turkey did. File under "weird behavior".

Turkey Points:

Of course, Light Reading itself has had its turkey moments. One example is our woefully out-of-date Top Ten Private Companies, last published in October 2002. Some of our picks back then look more than a little silly now, so we'll take one monster turkey point for that. Look for an update soon.

Have we missed any juicy turkeys? If so, feel free to lambaste a bird or two in the message boards below.

— The Editors, Light Reading

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