CMNT continues to implode. I wanted to get this local paper story about the situation someplace where it could be easily retrieved.
Net loss leads to layoffs at CNT
Steve Alexander, Star Tribune
August 18, 2004 CNT0818
Storage networking firm Computer Network Technology Corp. (CNT) on Tuesday reported a $12.1 million net loss for the second quarter and announced that it had laid off 18 percent of its workforce. The company blamed a slack tech economy, while analysts pointed to a difficult acquisition as well.
The results confirmed a warning by the Plymouth company this month that a delay in orders had undercut plans for near-break-even second quarter. CNT reported a pro forma loss of 20 cents a share on revenue of $77.2 million.
But before the company's Aug. 5 warning to lower expectations, analyst Chad Bennett of Miller Johnson Steichen Kinnard said he expected CNT would have pro forma earnings of 2 cents a share on revenue of $103 million.
CEO Tom Hudson blamed the results on slowed demand for information technology products because of a troubled economy.
But he acknowledged problems with an acquisition last year. Hudson said he still believes that acquisition of data storage networking company Inrange was good for CNT.
"We are very disappointed with the quarter, and we have as a result taken quick actions to balance our revenue and expense outlooks to get us back to neutral and then to cash flow positive and profitability by year's end," Hudson said.
To cope with sharply lower revenue, CNT said that last week it eliminated 220 of the company's 1,220 jobs, and that the layoffs affected primarily engineers, technical support workers and salespeople. About a third of those laid off were in the Twin Cities, and about 40 percent of the remaining 1,000 workers are based here.
Hudson said that the company saved about $7.5 million by consolidating product teams, and that CNT will take a charge of $3.5 million to $4.5 million in the third quarter for the costs of employee severance pay and closing facilities. CNT also might take another charge on goodwill and assets in the third quarter, he said.
Asked how much of CNT's second-quarter results were attributable to the economy and how much to difficulties with the Inrange acquisition, Hudson said it was a "complicated question."
"The economy is not as robust as some headlines from Washington and the trade press make it sound," Hudson said. "I think corporate customers are cautious about IT dollar spending, and they are looking for return quickly on every dollar spent. That cautiousness translates into lumpiness in demand." Competition also has been a factor, he added.
But Hudson defended the Inrange acquisition in early 2003. "We achieved significant cost savings that initially made the acquisition profitable and cash flow positive. We fell off that track this last quarter." He said the company hopes for a favorable reaction to its introduction next month of a new storage network product that will form the core of its product line.
Analysts said the economy and the acquisition hurt CNT.
"We think CNT is one of many technology companies that are struggling to see improved growth," said Christian Schwab, an analyst at Craig-Hallum Capital Group in Minneapolis. "[But] it appears that management has bet the future of the company on Inrange, which it acquired in May 2003 for $190 million in cash. Investors should avoid CNT shares until management demonstrates it can consistently grow sales of its higher margin CNT proprietary product line."
"Technology spending has been under pressure the first couple of quarters of the year, so in that sense CNT is representative of the overall macro environment," Bennett said. "But they also are having a difficult time with the integration of Inrange."
"What we're dealing with is a drop-off in revenue from the Inrange business, which already were flat to going down when CNT acquired them," Bennett said. "In addition, CNT is integrating its own products and the Inrange products into one product set, and that somewhat cannibalizes the revenue numbers. What everybody is trying to figure out is when CNT's revenue will really stabilize."
Steve Alexander is at alex@startribune.com. |
