OFF TOPIC--SCMR (Nasty stuff!)
Sycamore's Inventory Writedown Writes Script for Networkers
By Scott Moritz
Senior Writer
4/5/01 7:25 PM ET
<<<Sycamore Network's (SCMR:Nasdaq - news) stark earnings warning offers a chilling preview of what lies ahead for the networking sector in the coming earnings season.
Most notable was Sycamore's decision to take an eye-popping charge, in the range of $140 million to $150 million, to cover inventory writedowns, among other things. Like its network gear-making brethren, Sycamore is acknowledging it needs to clear its books of gear it stockpiled in anticipation of unceasing demand but now can't sell. Sycamore shares plunged nearly 30% in after-hours trading following the release, but the rest of the sector largely shrugged off the news after a strongly positive trading day.
Family Planning
The heavy demand for these companies' products is in the rearview mirror now, and analysts and investors are seeing the likelihood that massive writedowns are now in the cards for the big gear shops Cisco (CSCO:Nasdaq - news), Nortel (NT:NYSE - news) and Lucent (LU:NYSE - news). The bloody selloff of recent months suggests investors are realizing the Herculean task ahead of networkers as they seek to dig out from a mountain of components and finished products that went unsold. That means more hard times ahead for shareholders.
Spending cuts by cash-strapped telcos have landed a body blow to the equipment-selling sector, and now these firms are trimming their own operations in an effort to adjust. Sycamore, as challenger to the big three, is vulnerable because its client list -- it has a mere seven to 10 customers -- is so much thinner, giving it less leeway when big network builders pull back on spending.
Sycamore said on a conference call with analysts Thursday after the market closed that two customers dramatically cut spending this quarter and a third potential customer was dropped because Sycamore didn't want to expose itself to another vendor financing deal.
Fallout
The impact of Sycamore's lost business means third-quarter results will be nothing short of disastrous, with a steep loss reversing an expected profit and revenue falling short of estimates by at least 60%.
Syacmore now expects to post a loss of 16 cents to 19 cents for the quarter ending April 28, on revenue of $50 million to $60 million. Analysts polled by Thomson Financial/First Call expected the Chelmsford, Mass., company to earn 5 cents a share on a pro forma basis on revenue of $152 million. The company will also slash 13% of its workforce.
Sycamore said it would offer financial guidance beyond the third quarter when it reports earnings in May.
Sycamore's hesitance to bankroll another customer's equipment purchase is a clear signal that Wall Street's disdain for vendor financing is coming home to roost. So far, Sycamore has committed to $200 million in loans to upstart telcos CoreExpress and Storm, and to date, a total of $50 million has been drawn down.
After rallying $1.41 during regular trading Thursday to $9.06, shares of Sycamore sold off in after-hours trading, plunging 29% to $6.47 on Island. >>>
Best wishes,
Jim |
