Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (41145)	4/29/2004 5:32:19 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69828

Ciena Retrenches Email this page Format for printing Become a Fool! Reuse/Reprint Related Links Motley Fool Take Archive Nortel's Big What-If Lucent Sings to the Feds Cisco Might Pay Dividend Ciena's Not Like Other Telecoms Ciena's Double Connection Discussion Boards The Motley Fool Take Ciena By Rich Smith April 27, 2004 Rumors of the telecom industry's life have been greatly exaggerated. Nearly three months ago, I wrote about telecom equipment maker Ciena's (Nasdaq: CIEN) announcement that, among other things, it was expecting revenues to fall rather than rise (as previously predicted) and cash burn to continue apace (at about a quarter billion dollars per year). Since then, Ciena has adopted an opportunistic defensive stance. On the opportunism front, it purchased two small, privately held telecom equipment makers -- Internet Photonics and Catena Networks -- to strengthen its position in the broadband market against an eventual industry rebound. On defense, Ciena chose not to pay cash for the purchases (cash -- how quaint); rather, it negotiated both acquisitions as pure stock transactions. While this will dilute the shares of existing holders by 21.5%, it will also preserve Ciena's $1 billion cash-and-equivalents war chest. Last Thursday, Ciena announced another defensive move to conserve that cash pile: It will lay off 25% of its employees and close its San Jose, Calif., facility. The company believes that these two measures will save it up to $70 million a year in costs -- essentially accomplishing its stated goal of reducing operating costs by 10% to 20% annually. The thing is, it looks to this Fool like Ciena had an 18% reduction in operating costs in the bag even before making this move. In the first quarter of 2004, its operating costs were just shy of $90 million. For all of fiscal 2003, they were nearly $440 million -- an average of $110 million per quarter. So the company was already on track to make its expense-reduction target when it suddenly announced a plant closing and layoffs. Why? In my opinion, because it's likely Ciena does not see the telecom industry reviving any time soon. Remember that the company has enough cash in its coffers to weather roughly four years of stagnant telecom sales as it waits for a revival. If Ciena sees a need to cut its costs further, that suggests that it has doubts as to whether telecom will revive before its cash runs out in 2008. That bodes ill for Ciena shareholders in the short term. It also suggests that we could soon see a wave of similar cost-cutting moves among the Ciscos (Nasdaq: CSCO), Lucents (NYSE: LU), and Nortels (NYSE: NT) of the world. Is Ciena shoring itself up for more potential troubles ahead? Talk about it with other Fools on our Ciena discussion board. Fool contributor Rich