You guys should read this article...
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SCMR: Customers? What Customers?
Just in case you ever become the CEO of a public company, write this phrase down somewhere and vow to never say it on a conference call:
"We will not be generating cash flow from operations for the next several quarters."
That pretty much sums up the Sycamore disaster this morning. Last night after the close, they announced that rather than the $150 million in revenue and 4 cents in profit that we'd all been expecting this quarter, they were instead going to lose 16 to 19 cents on a pathetic $50-60 million in sales. On top of this the company guided expectations with that little phrase up there, striking fear into the hearts of every Sycamore long. They will of course be taking the nearly obligatory restructuring charge (a MONSTER too, at $150 million) in the quarter, as the put 13% of their staff back on the unemployment line.
But what's worse is the reasons why. If it was just the basic telecom slowdown story, the street might forgive them. After all, you have to think that with the stock down 95% in 8 months, a little of this was priced in. There are only so many customers out there for Sycamore products, and we've known who those customers were. The tragedy here is that one of the major reasons they're stinking up the joint is that they can't get their high end product into the marketplace. This is a big, OptoElectric core switch that competes with Ciena's CoreDirector product set. It's where the juice is supposed to be in Sycamore, but they can't actually produce the thing.
The company can at least afford to keep screwing up for a while. With over $900 million in cash (or a little over $3 a share) its not as if they are in danger of an immediate death spiral. But where does the next round of financing come from? Are they really going to get a private placement off in this market? A secondary? A junk bond? The way I see it, they've got to pull themselves out of this, and into profitability with the cash they have in the bank.
But how? Ciena is out there with product that solves customer problems right now. Sycamore is coming to the end of its big contracts with folks like Williams and Enron, and the small contracts are getting canceled.
Perhaps the best they can hope for is to get bought out... but by who? Cisco? Pardon me if I think the shine is off the Cisco acquisition machine, given their abandonment of Monterey.
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Dave Nadig
MetaMarkets.com |
