The wheel of layoffs has come full circle, as PMC-Sierra Inc. (Nasdaq: PMCS) -- one of the first semiconductor companies to make major cuts at the start of the downturn -- is having another go.

PMC executives announced yesterday they'll be cutting 16 percent of the company's 1,099 employees, slashing annual expenses by $25 million to $28 million (see PMC-Sierra to Cut Another 16%). Charges related to the restructuring will appear in PMC's earnings statements for the March and June quarters of 2003.

PMC also announced it would write down $20 million to $25 million related to the decreased value of venture investments, inventories, and some fixed assets.

The announcement came late yesterday afternoon, possibly because Wall Street rumors about the restructuring had spread during the day. PMC officials were not immediately available for comment.

Analysts weren't surprised by the layoffs, saying it was apparent that PMC was going to need an extra nudge to become profitable.

"According to published numbers, the company was not going to break even until 2004," says Arnab Chanda, analyst with Lehman Brothers. "This just tells you the business has not improved, and it's going to be tough for a while."

"Bob Bailey [PMC's CEO] has always been forthright about this," says Jeremy Bunting, analyst with Thomas Weisel Partners. "He was saying, 18 months or two years ago, that he'll do anything it takes to make the company profitable."

Analysts give PMC credit for being one of the first companies to react early and swiftly to the downturn, the other being JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU). In 2001, PMC rethought some of its pricey acquisitions of the previous two years, halting future development of the TinyTera switch fabric from Abrizio and scuttling products from Extreme Packet Devices and Malleable Technologies.

The hope had been to reach profitability by the first quarter of 2003, but the market hasn't cooperated. "Early in '02, there was an expectation that some of the metro stuff was going to move, but that hasn't happened," Bunting says. "As we enter into '03, telecom continues to be moribund."

There's an interesting contrast between PMC's approach and that of TranSwitch Corp. (Nasdaq: TXCC), which announced layoffs of 25 percent yesterday (see TranSwitch Q4: Losses, Layoffs). While PMC dropped products, TranSwitch did the opposite, taking on more R&D costs with the acquisitions of Onex and Systems on Silicon Inc. (see TranSwitch Harvests Startup, TranSwitch Buys Systems on Silicon, and Onex Chip Sees Light of Day).

Of course, TranSwitch made cuts too – a total of 133 employees during 2001 and 2002. But the effect on expenses hasn't been the same. Bunting's numbers show that during the downturn, PMC's revenues fell as much as 77 percent from their peak, while TranSwitch's fell 94 percent. But PMC's operating expenses dropped as much as 44 percent from their peak, while TranSwitch's dropped only 12 percent.

"In a sense, TranSwitch moved to preserve technology by putting it on the op-ex [operating expenses] line," Bunting says. "By contrast, PMC is being bolder and more strategic in cutting off technology development that it didn't feel could deliver near-term return on investment."

It's unclear if PMC will cut any major product lines this time around, but CEO Bailey did hint at what's untouchable. His prepared statement yesterday said he wants to "strengthen development efforts in MIPS processors, high-speed mixed signal [i.e. chips mixing digital and analog functions], and sub-90 nanometer design."

Details of PMC's restructuring will be revealed in the company's earnings conference call, scheduled for Jan. 23.

— Craig Matsumoto, Senior Editor, Light Reading