Earnings reports

Marconi Stock Tanks

Shares in Marconi Communications PLC (Nasdaq/London: MONI) took an enormous tumble on the London Stock Exchange this morning, falling in value from £2.45 (US$3.44) to £1.185 ($1.67) in the first hour of trading, a drop of more than 50 percent.

The avalanche followed a day of high drama yesterday when Marconi requested the suspension of trading of its shares on the LSE, on a day when Nasdaq was closed anyhow because of the public holiday in the U.S.

At the time that Marconi asked for trading to be suspended, yesterday morning, it said that regulatory requirements made this necessary because it was announcing the disposal of its medical systems business in the morning and its board was meeting during the day with a view to issuing a trading statement afterwards.

In the trading statement issued last night, Marconi warned that operating profits would be halved in this financial year, ending March 31, 2002 (see Marconi Issues Profits Warning). Sales would also be 15 percent lower. The company plans to trim another 4,000 jobs, on top of the 3,000 it announced in April.

The profits warning will have come as a nasty surprise for some investors, who may have been lulled into a false sense of security after statements made by George Simpson, Marconi's CEO, less than a couple of months ago.

At the time Marconi issued its annual results, on May 17, 2001, Simpson said: "We anticipate the market will recover around the end of this calendar year, initially led by European incumbent and established operators. On this basis, we believe that we can achieve growth for the full year."

In a conference call this morning, deputy CEO John Mayo acknowledged that Marconi's prospects had taken a sudden turn for the worse. He pinned part of the blame for this on the huge amount of money -- $100 billion, he said -- that European incumbents have paid out for third-generation mobile licenses. These carriers, many of which are Marconi customers, have had to pull in their horns on day-to-day investments as a result.

"When the finance directors turn off the tap, it happens suddenly," Mayo said. He went on to say that the converse is also true. Carriers will have to resume investment sooner or later, and when the finance directors turn the tap back on, Marconi will be well positioned to take advantage.

Investors don't appear to share that view, judging by the stock market reaction this morning. Many of them appear to be howling for Simpson's blood.

Simpson is planning to make way for Mayo to take over as CEO, by taking the post of chairman. Opposition to this appears to be growing, judging by the remarks of one of Marconi's top five shareholders, quoted in the Financial Times today.

In the conference call this morning, Mayo contended that even after yesterday's profit warning, Marconi was in better financial shape than many of its competitors.

"We are still expecting to report operating profits, and we're still expecting to be reporting positive cash flow, allowing us to use the proceeds of any disposals to pay down debt," he said.

Marconi hasn't indulged in financing carriers and has paid "relatively low multiples" for the acquisitions it's made, unlike many of its major large competitors, Mayo said. "Our customer base is made up of the major PTTs and ILECs of the U.S., and we see these players being strong and long-term survivors." Marconi is winning plenty of monster "frame contracts" with these carriers, but the operators' finance departments have put blocks on issuing purchase orders against these contracts in many instances, Mayo said.

"We believe this is a deferral and not a long-term famine," he added. "As traffic rates in our major customers continue to rise in an unabated fashion, they'll have to return to investment at some point... [Marconi] is well set to rebound when customers turn back to investing."

— Peter Heywood, Founding Editor, Light Reading
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Wizzer 12/4/2012 | 8:07:17 PM
re: Marconi Stock Tanks So does the supposedly unstuffy US management style do any better? Didn't do much for Lucent or Nortel.
shredj 12/4/2012 | 8:07:16 PM
re: Marconi Stock Tanks >Here's another tidbit. When Data Com magazine >was shut down, the limeys on staff - Steve >Saunders and myself - turned out to be the >entrepreneurial ones who set up Light Reading. >Most of the Americans on staff stayed put, >working for CMP.

Secret message here: all of you losers (including me)working for equipment companies missed the boat. You should have started a internet gossip forum.

mu-law 12/4/2012 | 8:07:13 PM
re: Marconi Stock Tanks Where's the LR nitty gritty on this? Surprising that it was missed.
grizzly 12/4/2012 | 8:06:58 PM
re: Marconi Stock Tanks You make a valid point Wizzer. It was wrong of me to stereotype and generalize an entire culture. Marconi's fate does not ride on the heritage of it's directors. More accurately, it rests on the character of those directors.
Directors who have (in my opinion) made stubborn choices time and again. I believe it's their character that drives this.
I further believe that this is a poor way to run any business.
As someone who is personally concerned about Marconi (as most of the people who post here are), a good part of me wants to see them succeed.
Unfortunately, with the latest happenings, I overshot my opinions and cast generalizations on others.
My apologies to all of the Limeys;-)
Now get out their and buy, buy, buy. MONI all the way!!!
Peter Heywood 12/4/2012 | 8:06:53 PM
re: Marconi Stock Tanks I'm going to steal the Macaroni joke...classic.
grizzly 12/4/2012 | 8:06:37 PM
re: Marconi Stock Tanks Y'know- I thought I was done beating this dead horse but, I've just learned the annual salary of former employee John Mayo.
Now in these tough market conditions, we all know that companies find it necessary to slash spending. I'm guessing that laying off employees seems pretty straightforward and probably makes a considerable impact. Of course, I don't pretend to be an accountant- but let's do some math anyhow;

Mayo's salary= $760,000
$760,000= 16.8 employees @ $45,000 each

Let's say we reduce Mayo's salary by 25%...
This would put his salary at $570,000 (still a good bit of money). And, the reduction would allow 4.2 employees to retain their salaries of $45,000 each.

This is just one simple example of reducing one executive level salary by a modest 25%.
(rumor has it that Marconi has many executives)
Get the point?

Hmmm (hamster wheel turning)... retaining your staff in turbulent times would most likely boost morale as opposed to laying them off. And when the market did come back around the company wouldn't have to spend $$$ to fill those positions that were previously let go. Other criteria exists that would maintain confidence in investors. Etc, etc, etc...

Rest assured, the Marconi executives priorities are right where we all knew they were, we just didn't want to believe it.
Titanic Optics 12/4/2012 | 8:06:37 PM
re: Marconi Stock Tanks I'm too square to make such a startup, but a good application for FTTH might be holographic porn.

Does anybody know the requirements (bandwidth) for a quality hologram? How many MB would a moving holographic image take. What is state of the art tody in holographic imagery.

Can't we get Paul Allen involved here?

flanker 12/4/2012 | 8:06:34 PM
re: Marconi Stock Tanks I'm too square to make such a startup, but a good application for FTTH might be holographic porn...

So "Colossus" has given up on free space optical transmission and quantum encryption?
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