A tall man tackles tall order at Corvis

THE BALTIMORE SUN

There's a new royal-blue lab jacket that hangs with all the others on the rack at Corvis Corp., only this one was custom-ordered to fit the lofty build of the company's new president, James M. Bannantine.

At 6 feet 5 inches tall, Bannantine still has the frame from when he coached and played volleyball years ago, and he is quick to offer jokes about the Corvis basketball team. But he is not at this Columbia fiber-optics company for a game; he is there to triumph over a challenge, and a new lab coat isn't the only thing he hopes to bring to the company.

"I wouldn't want to come in to be a caretaker," Bannantine said. "I wanted to come in to make an impact."

Bannantine has his work cut out for him. Analysts say Corvis needs more customers (it has five), and some think the company's technology is too far ahead of its time. Also, the entire telecommunications sector is struggling with cutbacks and layoffs like never before.

Bannantine faces "very, very serious challenges," said Simon Leopold, a telecommunications equipment analyst and a vice president for Merrill Lynch & Co. Inc. in New York.

Corvis makes equipment for fiber-optic networks, which carry voice and data. Since the company was founded five years ago, its stock rose to a high of $108.06 in August 2000 and has now fallen to less than $1. And its staff has been chopped nearly in half, to about 900, with more job cuts overseas on the way.

Most recently, it paid about $49 million in stock to acquire Dorsal Networks, a company that brought Corvis technology for the undersea optical networking market but did not bring Corvis any customers.

Bannantine said Corvis has "no place to go but up." That was part of what drew him to the company.

So, beyond the racks of telecommunications equipment and the hum of the lab where workers wear blue lab jackets to keep static electricity from damaging the machines, the 46-year-old executive is trying to make his imprint.

Bannantine said he has increased Corvis' focus on being a small company and erased some of the divisions between departments, mingling the sales force with engineering. He oversees sales and marketing, customer service, finance and business development, while the company's founder, chairman and chief executive officer, David Huber, handles research and development, engineering, technology and long-term vision for the company.

Some critics wonder whether Huber - who has the reputation of holding his ventures close to his vest - will relinquish that much control of the company he founded and brought public with a stunning $1.1 billion initial public offering July 28, 2000.

"I've just got to believe when push comes to shove, he'll be the final decision-maker. How else can you look at it? He's the major stockholder," said Mark Lutkowitz, vice president of optical networking research for Communications Industry Researchers Inc.

Bannantine says he has full responsibility and control of the day-to-day operations of the business, while coordinating with Huber on areas such as engineering and sales.

"We work very closely together as a team," Bannantine said. "We consult on a regular basis."

So Bannantine has become Corvis' new "operations guy," with a background that is heavy in business and finance but light in telecom.

A 1978 graduate of the U.S. Military Academy at West Point with a master's degree in business administration from the University of Pennsylvania's Wharton School of Business, Bannantine spent 12 years in the Army Corps of Engineers working in engineering and construction, and commanding troops.

At West Point, Bannantine went on to teach economics and finance. He also coached volleyball there and at the University of Pennsylvania, which might explain why he likened his first senior staff meeting at Corvis to a coach giving his team a pep talk.

Bannantine grew up outside Bakersfield, Calif., and has lived in South Korea, Brazil and England. Most recently, Bannantine, who speaks Spanish and Portuguese, oversaw 4,500 employees as chief executive of Enron South America.

He left Enron in January last year - before the corporate scandal there came to light - and founded Acumen Capital LLC, a Texas-based private equity firm that invested in energy assets.

Bannantine joined Dorsal Networks, a Columbia-based undersea telecommunications equipment company, last September as its chief executive, lured by the prospect of combining deal-making with running the day-to-day operations of a business.

In January, Corvis announced that it would buy Dorsal in a stock deal valued at about $90 million. When the acquisition closed in May, it was valued at about $49 million.

"What interested me personally was Corvis' technology and vision have clearly been recognized as cutting-edge, industry-leading," Bannantine said.

Bannantine said Corvis' technology fills a "sweet spot" between having been proven in the field and being young as far as leading technologies go. To critics who argue that the company's technology is too young and that its value might never be realized, Bannantine says, "That's why I came here."

He has taken on big jobs before. After learning that United Way International had no way to funnel a $10,000 donation he made through a Texas chapter to Brazil, Bannantine founded United Way International's affiliate there, something the organization had tried unsuccessfully to do for years, said Ana Maria Moran, vice president of United Way International.

Now, Bannantine sits on the United Way International board of directors. Moran said it was Bannantine's "leadership, his commitment to the community, his charm" that made him successful in starting the organization in Brazil.

Bannantine believes that Corvis, too, will be successful.

The company said it has received formal requests for information or for proposals from some of the biggest names in the industry, though it declines to identify them, citing confidentiality agreements.

Rick Schafer, a research analyst for CIBC World Markets in Denver, thinks Corvis' technology will catch on. "The next generation of networks that are being planned right now, and most of them are just on paper ... are being based on, to a large degree, a Corvis-type solution," he said.

Some analysts, however, think Corvis is a risky bet.

Lutkowitz said Corvis has to focus on one product and establish itself. He said Huber's all-optical vision may someday be met, but the question is will Corvis run out of money before then?

"I just think they've got to focus on what's real today," Lutkowitz said. "I don't know how you could be pushing all-optical switching in today's environment when we're at a time when carriers, they can write their own contracts. It's about filling what's out there now."

On a recent morning in the Corvis lab, where racks of gray equipment spit yellow wires, the company's vice president of engineering and technology support, David Smith, stood in front of the company's first all-optical switch. He explained how the switch allows information to move through a network on a continuous light beam, while other switches translate the information from light to electronic signals and then back to light.

If data were a car and the network was an interstate, cars using Corvis' infrastructure could drive directly from city to city while cars using other networks would have to stop at each city along the way, driving through traffic and stopping at lights, Smith explained.

Smith, who was Corvis' first employee, said working at Corvis has been "a fascinating ride. It's unfortunate we hit bad market conditions, but that's life."

Market conditions are Bannantine's top concerns these days. "You cannot abstract yourself from the desert that the telecom industry is in right now," he said.

To boost morale at Corvis, Bannantine talks with employees about their work and potential customers. He holds discussions in small groups and large, sometimes over lunch and sometimes at casual meetings.

Andrew Backman, Corvis' vice president of investor relations, described Bannantine's first senior staff meeting as "warm." And the company's chief financial officer, Lynn Anderson, said Bannantine is an open manager who interacts with all levels of the company and stays focused on raising morale.

To Bannantine, the biggest factor in raising morale is success, and he thinks Corvis workers have a sense that they are on the brink of success.

But analysts have raised concerns, not only about Corvis' revenue and customer base, but also about its stock price. Shares have been trading for less than $1 for more than 30 days, and the stock faces being delisted or transferred to the Nasdaq small cap market.

David Gross, a senior analyst who covers optical networking for Communications Industry Researchers, said moving Corvis off the national market could take some attention off the company, but in the near-term wouldn't be good for shareholders.

Shares rose a penny yesterday to close at 58 cents.

Bannantine, who has purchased 1 million shares of Corvis stock this year, thinks that, based on the company's technology and influence with potential customers, Corvis is greatly undervalued. But he won't guess when its value might be recognized.

"I would bet that it's not going to be this year," he said, "and I hope that it's next year - and I would say that's a reasonable hope."

With so many great challenges ahead, Gross said, Corvis shareholders would more than double their investments if the company gave back the cash it has and sold its assets.

But analysts said Corvis has some strengths to build on. The company has a portfolio of products, brand-name recognition in the industry, a record of having its technology successfully deployed and a strong balance sheet, Leopold said.

Corvis had $584 million in cash and short-term investments at the end of the last quarter, and it expects to have about $500 million left by the end of the year. The company has no debt and is trying to reduce its long-term burn rate to about $25 million a quarter.

What it ultimately comes down to is whether the company has customers and revenue, two obvious things that are missing from the Corvis equation, Leopold said. "Clearly, it's not easy, but the entire sector is in probably the most trying time we've ever seen," he said. "These are uncharted waters for the telecom industry."

But Bannantine thinks Corvis is poised for a victory. As the telecom industry bottoms out, he said, Corvis is busy looking toward the future and ensuring its longevity.

"Stay tuned," Bannantine said. "I think you'll see good things out of Corvis."

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