Corvis Corp. added its name yesterday to the list of telecommunications companies that will be reducing payroll in the thick of an industry slowdown.
The Columbia-based maker of fiber-optic equipment announced that it would cut 250 positions, or about 15 percent of its work force. The company will give employees the option of leaving voluntarily in exchange for a severance package.
"This is one part of our overall reduction, if you will, streamlining costs," said Andy Backman, director of investor and public relations for Corvis. Backman said the job reduction would be across all departments, except for senior management, for employees within the United States. Corvis has sales offices around the country.
The company hasn't decided what the next step will be if there aren't enough volunteers, Backman said. "I just don't know what the participation's going to be."
The offering of severance packages - which will give Corvis employees a basic severance pay plus choices from a menu to include accelerated vesting of stock options and even additional severance pay - comes at a time when other companies in the industry have been retrenching.
"We're seeing an awful lot of these cuts by the optical infrastructure vendors," said Christopher Nicoll, vice president of telecommunications infrastructure for Current Analysis Inc. in Sterling, Va.
Last month, when Corvis released its earnings for the first quarter, the company said it would consider options to streamline expenses.
Corvis is hoping to save $50 million for the year. The job reduction, Backman estimated, will account for less than half of those savings. The company also is considering other cost-cutting measures, including reducing excess facilities, he said.
Backman was unsure whether the job reduction would show up as a charge on Corvis' second-quarter earnings. Second-quarter revenue is expected to be from $50 million to $70 million, and pro forma losses for the quarter are expected to be from 5 cents to 8 cents per share.
Statement from CEO
"The reduction in work force announced today, though necessary for the company's long-term health, is nonetheless painful for those of us who have worked so long and so closely together in building Corvis into what it is today," David Huber, the company's founder and chief executive officer, said in statement.
"We are forced by circumstances to part with talented, dedicated workers, and we will make extraordinary efforts to ensure that no one leaves Corvis without adequate help in securing employment elsewhere." Huber said.
As of March 31, the company had 1,625 employees. Of those, 173 were hired in the first quarter of this year. Backman said the turnaround in the hiring pace came as a result of market conditions.
"I think they're just trying to plan for the long haul," said Prospero Roda, an analyst with Global Capital Securities in Baltimore. "They're trying to make sure their cash is sufficient until they make a profit."
Still, Roda said, what Corvis needs is to announce new customers. Since its inception in 1997, Corvis has announced only three customers: Williams Communications Inc., Broadwing Inc. and Qwest Communications International Inc.
Roda also said that Corvis' new product, a switch that uses both optics and electricity to move light beams, steers away from the all-optical products the company had been talking about and competes with a switch made by industry rival Ciena Corp.
"Looks like they missed an important market opportunity there, so now they're trying to get into it," Roda said.
News of cutbacks sent shares of Corvis down 36 cents to close at $7.06.
When Corvis went public in July, shares closed at $84.7188, making the company then worth more than $28 billion. The 52-week high for the stock came on Aug. 7, when shares soared to $114.75.
Nicoll of Current Analysis Inc. in Sterling, Va., said several telecommunications companies staffed up during the optical networking boom last year and now are now trimming their work force to keep pace with lagging growth projections.
'Kind of a unique position'
Corvis, he said, hasn't been hit any harder than Nortel Networks Corp. or Sycamore Networks Inc. The cutbacks, he said, aren't about Corvis' product, they're about the industry. "Corvis is in kind of a unique position," Nicoll said.
"In Broadwing, they already have a very large, very educated customer who is rolling out a prototypical Corvis network that Corvis can point to and say, 'This is the future.'"