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Optical/IP

What's to Save Sycamore?

There were no huge developments coming from Sycamore Networks Inc.'s (Nasdaq: SCMR) earnings conference call Tuesday, despite a frenzy of rumors leading up to the quarterly results.

Earlier today, rumors had Sycamore either announcing a large layoff or an acquisition by networking equipment giant Siemens AG (NYSE: SI; Frankfurt: SIE) during its conference call.

Sycamore often comes up as an acquisition target because of its low stock price. But the recent rumor involving Siemens as a buyer just won't go away. Most analysts, however, 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 its stock price -- improve (see Sycamore Mulling More Cuts?).

On the conference call, Sycamore executives intoned that some changes are ahead -- layoffs being most likely. Frances Jewels, Sycamore's CFO, says the company is doing a "top-to-bottom business analysis" so it can "further rationalize [its] cost structure... making sure [the company is] properly aligning existing resources with strategic initiatives."

In other words, budgets are being yanked all over the place and a large-scale layoff remains possible.

Sycamore's revenues for its third fiscal quarter, ended April 27, 2002, were $13.6 million, compared with $54.2 million during the year-ago period. Its pro forma net loss, which excludes restructuring charges and a basket of other items, was $26.3 million, or 10 cents a share, versus a pro forma net loss of $46.2 million, or 19 cents a share, for the year-ago period.

Wall Street expected the company to post a loss of 11 cents a share on $13.25 million in revenues, according to a consensus of analysts surveyed by Multex.com.

The company's headcount shrank to 665, with 29 people leaving the company, including Jeff Kiel, the vice president and general manager of Sycamore's Core Switching Business Unit.

The company burned through $23.3 million in cash during the quarter, which included $18.2 million in restructuring liability payments. With all charges added in, Sycamore's net loss was $22.8 million, or 9 cents a share, versus a net loss of $225.1 million, or 4 cents a share, during the year-ago period.

For the first nine months of its fiscal 2002, Sycamore recorded an actual loss of $306.1 million, or $1.21 per share, compared with a net loss of $237.5 million, or $1.01 per share, for the same nine month period in fiscal 2001.

The company has a market capitalization of $979.8 million, though its cash and investments total $1.06 billion. Indeed, analysts say Sycamore's crowning assets, as an acquisition target, are its cash and its optical switching product.

"Sycamore's cash position is what is supporting the stock right now," says Hasan Imam, an analyst at Thomas Weisel Partners. "We have been concerned by companies such as Sycamore, Corvis Corp. [Nasdaq: CORV], Sonus Networks Inc. [Nasdaq: SONS], and others that lagged in aligning their business models to market realities."

"They're working hard, but this is a tough road for the less established equipment vendors," says Jeffrey Lipton, an analyst with J.P. Morgan Chase Bank & Co.

Looking at the market share of its non-switching products, it's no wonder that Sycamore's cash and optical switching are its crown jewels. Sycamore held the sixth market share position out of 10 vendors in 2001 for long-haul DWDM gear, according to market researcher Dell'Oro Group. It held the tenth market share position out of 11 vendors in the overall Sonet/SDH market for 2001. (Data for its optical switch market position was not available.)

Sycamore CEO Dan Smith remained upbeat about the company's technology. "Our software continues to be our greatest technology asset," he says, noting that Sycamore will complete its Osmine certification processes in the fourth quarter of 2002.

"Though the overall business market continues to be challenging…the optical switching market doesn't sit still," he says.

That said, product revenues were down across all Sycamore's product lines and the company pulled in as much of its revenues from services as it did from product sales.

Because of its current fit of self-scrutiny, Sycamore declined to give any revenue or gross margin guidance for the coming quarter. It only said that it expects to end the period with "well more than a billion in cash."

Sycamore shares closed down $0.07 (1.9%) to $3.58 in trading on Tuesday.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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chromatic aberration 12/4/2012 | 10:20:21 PM
re: What's to Save Sycamore? Phanatron:
The SN 16000 can also groom indivsual STS-1 between UPSRs, meshes, and linear spans.
_______________________________________________________________________________

Yes, it probably can do all of those things, in instances where the line cards have not given up the ghost on first power up.
BobbyMax 12/4/2012 | 10:20:22 PM
re: What's to Save Sycamore? The bubble has burst for Sycamore.With no demand for its products, it cannot survive on a one billion dollars it has stashed away for the benefit of the management team.

Its management team has very rich while the poor workers are being laid off.

With a lot of optical companies closing down and workers are losing their jobs, but founders always have a way to rake money.
Phanatron 12/4/2012 | 10:20:26 PM
re: What's to Save Sycamore? The SN 16000 can also groom indivsual STS-1 between UPSRs, meshes, and linear spans.
Phanatron 12/4/2012 | 10:20:29 PM
re: What's to Save Sycamore? The SN 16000 terminates UPSRs, meshes, and linear spans. Currently it does not terminate BLSRs.
ramesh113 12/4/2012 | 10:20:30 PM
re: What's to Save Sycamore? > Ciena took a big chance implementing a
> proprietary control plane(to GMPLS), but > understood well the need to evolve the network
> and co-exist with rings.

When Lightera developed their control plane,
GMPLS did not exist, so there wasn't any
"big chance".

Ramesh
shaggy 12/4/2012 | 10:20:31 PM
re: What's to Save Sycamore? "The SN 16000 can terminate rings, meshes, and linear spans on the same box."


From my experience, this is a theoretical truth, not an actual one. The company was/is so mesh-centric in their thinking that UPSR/BLSR features in the software architecure were placed waay back on the priority list. As the old Jeff Kiel mantra goes, "Rings bad, mesh good"....

While the overall control pane arch was pretty good in concept, they ask for too disruptive a network change. Everbody's got rings, so you better support rings, even if you run them as a virtual mesh.

I'm not certain their messaging was ever clear enough on this point to be effective.
lettherebelight 12/4/2012 | 10:20:39 PM
re: What's to Save Sycamore? MM,

You said: I'm glad to offer (just another) opinion. Actually, that's the problem with the SN16000....it does not terminate rings.

Although I am not a connoseur, all the information on their web site (even the diagrams) indicate that the SN16000 DO terminate rings (close rings). By the way, they also say they can terminate linear, ring, and mesh all at the same time in the same unit.

Am I wrong or are you misinformed about this?

LTBL
Phanatron 12/4/2012 | 10:20:39 PM
re: What's to Save Sycamore? The SN 16000 can terminate rings, meshes, and linear spans on the same box.
Outsider 12/4/2012 | 10:20:42 PM
re: What's to Save Sycamore? If Sycamore has all of these problems, which optical system company stock would you then invest in today to see some upside in the next 3 years? (Insiders, especially Sales people please speak up.)

Corvis
Tellium
Lucent
Nortel
Ciena/ONI
Cisco
Sycamore
Alcatel
MRV
Mad Max 12/4/2012 | 10:20:43 PM
re: What's to Save Sycamore? Is SCMR not planning to support UPSR or BLSR?

-------------

Good question. It doesn't appear to be in the plans today and it certainly goes against their existing strategy. But as part of their ongoing product/corpoate overhaul, they may reconsider.

Ciena took a big chance implementing a proprietary control plane(to GMPLS), but understood well the need to evolve the network and co-exist with rings.

MM
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