Optical restructuring
September 05, 2001 12:00 AM ET
by Patty Enrado
upside.com
Optical restructuring
page 2: No stopping M&As
Although not as large as JDS Uniphase, Sycamore Networks (SCMR), a developer of software-based intelligent optical-networking products for service providers, also handed out pink slips in early April. The company shed approximately 13 percent of its 1,126-person workforce.
Kevin Oye, vice president of business development at Sycamore Networks, comments on the painful decision: "What we did was resize the company. We started to refocus. The goal is you do what's necessary right now, instead of dribbling it out, so you can rebuild the business and move forward."
Sycamore is at the other end of the spectrum. Oye, who oversaw 14 acquisitions when he was at Lucent Technologies (LU), doesn't subscribe to unabated M&A activity. The company adheres to a more conservative philosophy: Choose specific markets to compete in and then either invest internally, invest in a partner, or acquire a company that has the technology or human talent. "In my viewpoint, acquisition is always your last resort, because a tremendous amount of work has to be done to integrate a company into your operations for you to release the value of the acquisition," Oye explains.
Optical restructuring
page 3: Spinoffs and divestitures
Sycamore devoted a large amount of effort to its post-merger integration. Case in point is the company's September 2000 acquisition of Sirocco Systems, which, according to Oye, was the first company to incorporate switching into the optical edge.
After looking at more than 40 candidates, the company identified Sirocco as having the best people, the best fit with Sycamore, and a product focused on the optical edge that Sycamore believed the market needed. Within 10 days of joining the two companies, both management systems were fully integrated, and Sycamore got its signaling and routing software, which runs on its own big switches, to run on Sirocco's switches. Oye relates that one customer was so amazed with the level of integration that it became the first company to purchase the Sirocco product as part of Sycamore.
Holding on is something Sycamore is also prepared to do. The company has had its share of rocky times. Its stock, which once peaked at $167, hit its lowest point at under $8. Sycamore was forced to preannounce its third-quarter revenue and earnings for 2001, because one customer killed a project and another requested and was denied vendor financing. For 3-year-old Sycamore, which has relatively fewer customers in its portfolio than bigger, more established companies that would be able to average out such losses, the two fallen deals significantly impacted the company's revenue.
Although Sycamore financed two customers, it largely avoided CLECs that sought vendor financing. Despite criticism that it was walking away from potential revenue, Sycamore decided to build a portfolio of financially able customers, rather than focus on volume. Oye says, "If you say you have 20 customers today, and then 5 go bankrupt, what's the value of that to the shareholders? The mantra we've always had was one to two new customers, on average, per quarter, and we've consistently delivered that since we went public."
Optical restructuring
page 4: Positively challenged startups
Oye notes that, unlike the optical companies that seemed to operate with a different set of business and financial rules -- no budget, no strategy, and hire and spend with wild abandon at the directive of VCs -- Sycamore has always operated with discipline. He credits Sycamore President and CEO Dan Smith with the company's spartan business approach.
Oye says, "I think that's a large reason why you'll find that what looked like conservative policy management during the go-go time is now looking like smart business management. The kind of management style that has always pervaded here was: Follow good, solid business practices; follow good, solid cash-management principles; and the valuation of the company will follow."
Who's still standing?
Sycamore believes that the industry resetting is actually a good thing for the company (with apologies to those who received pink slips). Oye cites three factors that will determine which companies will survive: money in the bank, a quality management team that has persevered through previous economic cycles, and a strong set of alliances and partnerships with suppliers and customers. He says, "We're not trying to be enterprise land players or anything else. We are optics. Our whole identity is around optics. As long as we stay focused, there will be lots of opportunity for us to fulfill in the next 12 to 18 months. We're poised, and we're organizing everything we have to catch that wave when it comes back."
One thing that all of these companies agree on is that the aftermath of the telecom boom has forced them to focus more fiercely on what drove them to market in the first place: insatiable bandwidth demand and the unwavering belief that optical technology is the solution. |
