Will Sycamore Call It a Day?

Optical switch supplier Sycamore Networks Inc. (Nasdaq: SCMR) is known to be looking for an out. But what will the company's fate be when it finally scores a buyer for its customers, support contracts, products, and intellectual property -- or any combination thereof? The question hangs in the air as a source close to the company tells Light Reading that once Sycamore unloads some parts of its business, its plan is to buy its stock back from shareholders and close up shop for good.

Light Reading can't immediately confirm the claim, but, regarding Sycamore's eventual fate, almost nothing would be too far-fetched.

The significance here is that Sycamore is the very definition of a company that has never lived up to its potential. The company continues to frustrate, because it has an asset that every telecom company needs -- cash -- and it doesn't appear to be doing anything with it. The company had cash, cash equivalents, and investments totaling about $958 million as of October 30, 2004. More than $201 million of that was pure cash and cash equivalents. The company has been on a wild ride, to be sure. At the turn of the century the Chelmsford, Mass.-based company was a rising star in a hot optical equipment market. Sycamore's revenues peaked at $149.2 million at the beginning of 2001, with net income of $13.8 million. But roughly 15 months after the company's IPO in 1999, the telecom capex spending slump set in, and Sycamore's revenues fell. Hard. The company never recovered -- by the fourth quarter of 2004 it had lost a cumulative $788.9 million -- and now, just four years later, it could finally be closing time (see What's to Save Sycamore?).

But, as stated, almost no Sycamore exit strategy is beyond the pale.

In fact, another well placed source says that Sycamore chased at least two end-game plans in the past year or so. The first plan: Sycamore would sell its hardware line, acquire an OSS company, and morph into a telecom software supplier. The second plan: Sycamore would acquire a telecom product line in a "growth" segment of the market, with the primary requirement being that it already have an existing revenue stream. Sycamore, which reports earnings on February 22, declined to comment on its strategic options.

What is well known is that Sycamore has hired some eyes and ears. Several months ago, it brought in Morgan Stanley to assist "in the review of strategic and financial alternatives for our company,” according to its SEC filings. Sycamore confirms that the investment bank is still on retainer.

The company reveals in its SEC filings that it would consider selling itself; merging with or acquiring another company; remaining a standalone company; or "recapitalization alternatives, including stock buybacks and cash distributions."

Sycamore has several marquee customers, including Sprint Corp. (NYSE: FON), Vodafone Group plc (NYSE: VOD), and the U.S. Military, but it is still putting up relatively small revenue numbers (see Sycamore Signs Sprint, Seeks Help). And, for the first fiscal quarter of 2005, a large chunk of its revenues -- 37 percent -- were tied to the Defense Information Systems Agency's Global Information Grid Bandwidth Expansion (GIG-BE) project (see GIG-BE Winners Named). "Last quarter their revenues were $14 million, their cost of goods was $8 million, and their operating costs were $17 million -- and that’s in a quarter where they had 78 percent revenue growth -- so you do the math,” notes Argus Research Co. analyst Jim Kelleher. “They are a mile from profitability, and the longer they stick around, the longer they burn cash.”

— Mark Sullivan, Reporter, Light Reading

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optodoofus 12/5/2012 | 3:26:57 AM
re: Will Sycamore Call It a Day? Sycamore's sales would probably pick up if they hired some sales people. Last I heard, they had one sales person covering North America, all the rest either having quit or been fired (giving them an impressive ratio of one sales VP per sales person). If Sycamore is not interested in increasing revenues, they should at least fire the remaining sales dregs and cut their burn rate. I'm sure that their sales VP could parlay his performance at Sycamore into any number of choice oportunities elsewhere.
BB 12/5/2012 | 3:26:56 AM
re: Will Sycamore Call It a Day? for holdings < 1 yr are you taxed at income rate for each transaction (for same stock) or are you taxed at income rate over the total gains

eg.. sell google *3 /yr... taxed on each individual sale.. or taxed one time for total gain?
Theologian 12/5/2012 | 3:26:55 AM
re: Will Sycamore Call It a Day? If they truly have $1B in cash+ or $0.2B in straight cash, aren't they an obvious extra few quarters of life for Bookham (or Avanex)...?

Not that either company would buy acquire someone else just for their cash.

OptixCal 12/5/2012 | 3:26:55 AM
re: Will Sycamore Call It a Day? Wow,
As an early supporter of Sycamore, from visits while they were in their VC offices, to their different moves to larger and bigger campusses, I'm saddened to see this happen. I was with them on their wild ride, and know some of the founders. I guess nothing lasts forever, but this one is particularly painful.
DZED 12/5/2012 | 3:26:53 AM
re: Will Sycamore Call It a Day? Not sure how Bookham could get its hands on Sycamore's money, I guess Sycamore could acquire Bookham though. The Bookham execs are desparate to get out and get their payoffs so maybe they'll go for it.

However, if one mismanaged loss making company were to merge with another mismanaged loss making company it would just be a bigger loss making mismanaged company.

I've been wondering, is there a team of execs anywhere in opto who know what they are doing?
And where are the company directors in all of these dodgy outfits? don't they have some responsibility to shareholders?
ATMRules 12/5/2012 | 3:26:52 AM
re: Will Sycamore Call It a Day? Was one of the original 100 sycamore employees, then again I would probably have left after I dumped enough of my shares at pennies when it was trading for $150 + / - 6 months after IPO...wonder how many of the original 100 are still there......

Just Do it already......
dogmeat 12/5/2012 | 3:26:52 AM
re: Will Sycamore Call It a Day? Cosine and Copper Mountain shareholders agree that Tut is the solution for Tech Zombies with cash in the bank...
ThurstonHowell3rd 12/5/2012 | 3:26:52 AM
re: Will Sycamore Call It a Day? You Wrote - "I'm sure that their sales VP could parlay his performance at Sycamore into any number of choice opportunities elsewhere."

Ohhh how true Gilligan my boy! I understand his track record is truly littered with just endless numbers of achievements... with that head of hair - all he needs is a cravat and a dickey and he'll be all set.

Now go fetch me a drink my boy and DON'T forget the umbrella !!!
gzkom 12/5/2012 | 3:26:52 AM
re: Will Sycamore Call It a Day? Broadwing has 18,000 mile OOO networks, Focal, and 120,000 customers in 23 markets with near $100million net cash in the bank, and some IP and a few patents (really).

Sycamore can buy Broadwing (market cap $327 million) twice and over with their cash.

ThurstonHowell3rd 12/5/2012 | 3:26:51 AM
re: Will Sycamore Call It a Day? And do what with it?
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