Sycamore out of places to cut

Sycamore Networks has cut about as much of its operating costs as it can, the company said today during its April quarter earnings call. But company executives refused to offer any details on how the company might evolve through mergers or acquisitions to become a more comprehensive supplier of networking needs.

Going forward, operating expenses for Sycamore’s core optical switching business (not including the business it will inherit through its pending acquisition of edge equipment vendor Eastern Research) are unlikely to drop noticeably below their April-quarter level of about $13 million.

“[Operating expenses] are going to be flat to modestly improved, but not significantly,” Chief Financial Officer Richard Gaynor said.

The company spent nearly $8 million on research and development during the quarter, a decrease of nearly 27% from a year earlier and about 35% of revenue. It also spent nearly $3 million on sales and marketing and nearly $2.3 million on general and administrative expenses--both up slightly from a year earlier on Generally Accepted Accounting Principles (GAAP). On a non-GAAP basis, all three operating expenses were down from a year earlier for a total reduction of about 25%.

Sycamore’s headcount, reduced by two in the April quarter, now stands at 259. In March, the company sold a plot of land in Tyngsboro, Mass., on which it originally planned to build a new headquarters.

The company’s April-quarter earnings were “solid,” according to an early morning note from Lehman Brothers. “The balance sheet looks good,” it said. Sycamore reported a net income of more than $10 million for the April quarter, up from a $12-million loss a year earlier. Revenue was up 10% sequentially and 29% from a year earlier to nearly $23 million. The company attributed the growth to a contract renewal from an existing customer that included the deployment of backup network routes called “spares.”

Sycamore’s already sizable cash and equivalents balance increased by $5 million in the quarter to $971 million.

And in May, Sycamore announced, the company was informed that it was the subject of a formal investigation by the U.S. Securities and Exchange Commission related to the accounting of stock options granted between 1999 and 2001.

As for future acquisitions, Sycamore chief executive Daniel Smith seemed to indicate the company will pursue only one at a time.

“The Eastern acquisition is a first step,” Smith said. “We’re focused on the integration of Eastern. That’s where our focus is going to remain. We expect to complete the integration in the summer. As we complete that and move to the next page, we’ll share thoughts as appropriate when we’ve reached further conclusions as to other steps.”