Spending delays and outright stoppages again took center stage last week as a spate of major cable-equipment manufacturers peppered Wall Street with disappointing earnings, warnings and layoffs.
The economic slowdown has become more far-reaching by the week and has now touched consumer-premise manufacturers, video-on-demand suppliers and transmission-gear makers.
Following a disappointing fourth quarter spurred by order-shipment delays by AT&T Broadband and an overall sluggish economy, Antec Corp. last week said it would slash 35 percent of its "direct-labor work force" by the end of the month, essentially hewing its 2,300-member manufacturing staff down to about 1,500.
Antec also said it would cut its overhead work force by 8 percent. The company will reduce its total employee rolls from 3,800 to about 3,000, spokesman Jim Bauer said.
Ninety percent of those reductions have been completed, and more may be required if Antec does not rebound quickly, CEO Bob Stanzione told analysts and reporters during an earnings call Wednesday.
With respect to AT&T Broadband, Antec said fourth-quarter sales to the MSO were about $50 million, down from $131.1 million in the year-ago quarter, the company said. For the quarter, Antec reported a wider-than-expected loss of $5.1 million (13 cents per share), versus a profit of $6.3 million a year ago. Antec's fourth-quarter revenue, meanwhile, declined 28 percent to $177.7 million.
AT&T ORDER CITED
AT&T Broadband put in a large order for cable-telephony equipment on Jan. 1, said Stanzione. But he expects the rest of the quarter to be "a bit lumpy" as the MSO fine tunes its inventory.
Earlier this month, AT&T Broadband said it does not plan to order any additional consumer-premises equipment during the first quarter.
Stanzione said the magnitude of the reduction in capital spending by service providers "caught us all by surprise." But he was optimistic that it was a question of when, not if, levels will rise again.
That has also caused the company to explore the possible sale of "certain assets" that do not enjoy market-leading positions. Stanzione declined to elaborate on which Antec units could be put on the block. Other short-term spending cuts will include trade shows and advertising, he added, noting that the combined moves are necessary to return Antec to profitable growth.
Looking ahead, Stanzione predicted that Antec's pending deal to acquire Nortel Networks' interest in the Arris Interactive LLC joint venture would give his company a global footprint and an area from which to grow. Antec and Nortel are restructuring the financing on that deal and should close it during the first or second quarter, Stanzione said.
Stanzione was also bullish about the voice-over-Internet protocol market, and noted the company's trial-equipment relationships with Adelphia Communications Corp. and Charter Communications Inc. Antec also will "be in the hunt" with Time Warner Cable, which has recently expanded its VoIP pilot efforts.
But Antec doesn't expect major VoIP cable operator rollouts during the first half of 2000, Stanzione said, because many MSOs are expected to remain in the pilot phase for some time.
VOD IMPACT
Equipment-order delays have also affected some video-on-demand vendors. Shares in SeaChange International Inc. plummeted last Monday after the company warned it would miss fourth-quarter revenue projections because of "a delay in significant residential video-on-demand orders."
SeaChange said it expects to report a record $5 million in interactive-television revenue, driven by VOD equipment sales. That's well short of the $9 million expected by analysts.
Concurrent Computer Corp., another VOD vendor, released a similar warning in December.
SeaChange has struck VOD deals with four MSOs: Time Warner Cable, Comcast Corp., Cablevision Systems Corp. and Rogers Cable Inc. in Canada.
SeaChange vice president of business development and marketing Ed Delaney declined to name which operator delayed its order, noting that the company "requested that we not."
Investors drove the price of the stock down 24 percent last Monday, when it closed at $19.38. The stock increased slightly to $20.25 at Wednesday's close.
Delaney said SeaChange signed a contract with the operator that delayed its fourth-quarter order. Because of a delay in executing the order, SeaChange will account for the deal in its first-quarter earnings report, Delaney said. The company has $9 million in first-quarter VOD orders on hand, he added.
"A lot of cable operators were doing review of their budgets into January, which resulted in a delay," Delaney said. "It's a new business. People are making sure they're making the right decision."
Time Warner and Cablevision officials wouldn't address whether their companies delayed orders with SeaChange. "We do expect to roll out a meaningful number of video-on-demand launches this year, but we have not released the timing or the locations," Time Warner spokesman Mike Luftman said.
Cablevision spokesman Charles Schueler declined to comment. Comcast and Rogers officials didn't return calls.
The SeaChange warning came less than three weeks after the company's Jan. 18 investor conference in New York. At that gathering, the company spoke optimistically about its VOD play and brought along Time Warner chief technology officer Jim Chiddix to discuss the MSO's SeaChange deployments.
But the company made no mention of the revenue shortfall, which disappointed some analysts.
"I think people are frustrated because SeaChange sounded very confident at the conference," said Michael Poustovoi, an analyst at Morgan Keegan & Co. "I think the expectation was that SeaChange would meet its number for the quarter, but it just didn't happen."
Delaney said the company didn't disclose the order delay to investors because "we expected to make our number right up until the end of the quarter." He also said the company was in a quiet period.
COX IS CAUTIOUS
Poustovoi said he's still confident in the VOD market, but said he has adjusted his 2001 model for SeaChange. Morgan Keegan expects the company will generate $53 million in VOD revenues, down from its previous prediction of $65 million.
In December, Concurrent warned it would miss its second-quarter VOD revenue expectations, blaming the shortfall on a "short-term delay in orders from a major domestic cable operator." The company has cut deals with Time Warner, Comcast and Cox Communications Inc., but wouldn't say which operator delayed its order.
Coincidentally, in reporting the MSO's quarterly earnings last week, Cox officials expressed some concern about how the slowing economy might affect "add-on video products," notably digital cable and VOD. [See Finance, page 37.]
Poor market conditions have also affected the private VOD sector. Closely held Diva Systems Corp. scrapped an initial public offering in December.
TRANSMISSION LOSSES
On the transmission front, Stanzione said Antec continues to be "strong" with its headend pieces, but lost ground in its node and RF (radio frequency) amplifier businesses during the fourth quarter. Stanzione hoped orders for Antec's infrastructure equipment would resume "later in the year."
Another transmission player, Harmonic Inc., succumbed to the economic heat last week and said it would take an $800,000 charge to slash its overall work force by about 10 percent, or roughly 100 jobs, in a bid to bring costs in line with existing revenue levels. Harmonic has been hit hard by cable-operator spending slowdowns, despite reducing its reliance on AT&T Broadband business.
CommScope Inc., a manufacturer of hybrid-fiber coax (HFC) gear, also took a hit as its fourth-quarter sales dropped 17 percent, to $248 million. The company cited a general slowdown in capital spending and, in particular, the previously disclosed slowdown by AT&T Broadband.
No single customer represented more than 10 percent of CommScope's sales during the quarter, the company said. But the slowdown prompted CommScope to initiate an eight-day "rolling layoff"-or unpaid time off-that will affect 5 to 20 percent of the company's staff at any one time, spokeswoman Betsy Lambert said.
The move affects between 160 and 640 of the company's 32,000-member work force in North Carolina. Lambert said CommScope has used that strategy in the past to help it muddle through sales "peaks and valleys."
PILING ON
Even seemingly bulletproof technology giants also saw slower sales growth.
Chipmaker Broadcom Corp.'s share price fell more than 10 percent on Wednesday after CEO Henry Nicholas reportedly told Banc of America Securities that the company's sales could be slower than expected.
Internet networking equipment giant Cisco Systems Inc., meanwhile, reported lower-than-expected second-quarter results, citing spending decreases by telephony companies. The news spurred a heavy round of selling that sent company shares to a new 52-week low-$29.87 on Feb. 7.
Late last week, the Austin American-Statesman
reported that Motorola Inc. could slash 13,000 or more jobs across the company, or about 10 percent of its work force.
It was unclear whether those cuts would affect the company's Broadband Communications Sector, a major MSO equipment supplier.
Motorola Broadband "currently has no plans for major layoffs," Dave Robinson, the division's newly appointed president, said in a statement.
"Motorola Broadband, along with the rest of Motorola, is driving to become more efficient and to invest in resources consistent with the growth opportunities in the market-business that we earn from our customers," he added.
