Job Cuts Prolong Tekelec's Tech Wreck
Plastina's latest move is to cut 60 staff, mostly from its Switching Solutions Group based in Plano, Texas, in an effort to get its costs under control. (See Tekelec Cuts Headcount.)
The redundancies will cost the company $3.4 million in charges, which will be recorded in the current quarter ending June 30. Tekelec estimates the move will reduce its annual operating costs by between $8 million and $8.5 million, nearly three percent of its 2005 operating expenses of $328 million.
The news comes only days after the company announced an executive reshuffle, including the resignations of its chief marketing officer and senior VP of operations. It also comes less than three months after Tekelec named a new president of the Switching Solutions Group after the previous incumbent quit. (See Tekelec Shuffles Execs, Tekelec Names Prez, and Tekelec President Quits.)
It's been a testing year for Tekelec, during which it has been dogged by accounting difficulties that resulted in a delisting threat from Nasdaq . (See Tekelec Delays Q1, Tekelec Gets Nasdaq Notice, and Tekelec Delays Results.)
It also took a significant financial hit related to its Taqua softswitching business. (See Tekelec Taqua Saga Drags On.)
And in the past month the company has experienced a dramatic slide in its valuation. Tekelec's share price may have closed up 47 cents, more than 4 percent, Wednesday at $11.70, giving it a market value of $786 million, but its stock value has fallen more than 18 percent in the past month, from a price of $14.36 on May 22. During that time the company restated its financial results from 2003, 2004, and 2005. (See Tekelec Files Q4, Restates.)
And, according to Jefferies & Co. Inc. analyst George Notter, the switching business is set to get even tougher. In a recent research note, Notter stated that "the competitive environment in switching appears to be getting incrementally more difficult for Tekelec," as prices continue to fall and as some incumbent vendors have become "more aggressive in bundling existing circuit switching gear with VoIP media gateway deals."
But Notter sees some positives, too, as he reckons Tekelec's OEM relationship with Alcatel (NYSE: ALA; Paris: CGEP:PA) is stable despite problems at Cingular Wireless . (See Alcatel, Tekelec Extend Deal and Tekelec Takes a Hit on Cingular.)
"In the wake of the recent Cingular debacle, Alcatel has fixed its issues with the Spatial softswitch. We understand that the OEM is back working customer opportunities with the combined Tekelec/Spatial product solution. This view – that the Cingular problems were a unique situation and won't spread to other accounts – is reinforced through our recent conversations with industry contacts," writes Notter.
The analyst is also positive about Plastina's management approach, noting that the vendor is "also working to more selectively identify profitable account opportunities."
— Ray Le Maistre, International News Editor, Light Reading