Clarent dismisses 300; investigation continues

Already reeling from an investigation into accounting irregularities, Clarent announced it will lay off half of its work force and lowering third-quarter revenue estimates by 43%.

The developer of software solutions for IP networks also dismissed two employees and accepted the resignation of another as a result of the investigation into “potential material overstatement of historical revenues.”

Clarent accepted the resignation of Jerry Chang, the company’s chief strategist, and terminated Matthew Chiang, president of Clarent’s Asia Pacific region, and Kevin Chang, general manager of Clarent’s Northern Asia operations. All three had been placed on administrative leave earlier in the month.

Clarent lowered its third-quarter revenue projection to a range of $17 million to $18 million from previous guidance of $40 million to $43 million.

Clarent is laying off 350 employees, about 50% of its worldwide work force. Chief Marketing Officer Steven D’Alencon is included in those layoffs. Clarent is losing another top executive in Peter Bohacek, senior vice president of business development and product marketing, who is leaving the company to start a consulting practice.

Clarent’s business has slowed as greater competition from long-haul providers caused rates to fall, said Joseph Cyr, director of equity research at CIBC World Markets. Falling rates decrease the “toll arbitrage” opportunity for IP telephony providers, Clarent’s key customer set, Cyr said.

As a result, Clarent will try to reposition the company and its technology around newer, emerging markets such as packet telephony over broadband-access networks, Cyr said.

“Until that market matures, they’re going to be in a transition period,” he said.

Clarent first announced its internal investigation into the accounting malfeasance on Sept. 4. At that time, the company said the overstatements involved revenues for the first and second quarters of 2001.

The company expects its reported net losses for those periods will increase and that it will have to adjust its balance sheets to account for a “material reduction” in cash and an increase in other assets.

“We’ll see those quarters reflect slowing sales,” Cyr said.

The company has said revenues for the second half of 2001 and all of 2002 will be “substantially below” previously anticipated levels and that related losses will be significantly larger.

Ernst & Young, Clarent’s auditor, is assisting in the investigation.

Nasdaq halted trading of Clarent shares in early September pending additional information from the company.