Sycamore warns of large shortfall

(Telephony) A sales slowdown and weak order flow caused Sycamore Networksto drastically reducing its fiscal third quarter earnings forecast and lay off 140 employees, or 13% of its work force. The once high-flying optical networking company also will take a hefty restructuring charge.

Sycamore announced that its revenue will be between $50 million and $60 million in the current quarter--about $100 million less than expected. The company also expects to record a pro forma net loss.

Excluding amortized deferred stock compensation, payroll taxes on stock options exercises and restructuring charges, Sycamore estimates a loss in the range of $38 million to $45 million, or between 16¢ per share and 19¢ per share. Analysts surveyed by First Call/Thomson Financial were expecting the company to post a 5¢ per share profit on revenue of $152 million.

In the year-ago quarter, Sycamore posted net income of $11.7 million, or 5¢ per share, on revenue of $59.2 million. Gross margins for the third quarter will be between 10% and 15%, about 30% below analysts’ estimates.

Sycamore will take a one-time restructuring charge of $140 million to $150 million to cover the costs of the layoffs, inventory and fixed-asset writedowns, consolidation of the company’s two transport business units, and delay of facility expansion.

Sycamore attributed the shortfall to several factors, including a slowing in orders from two major carrier customers, a decision to deny vendor financing to an emerging carrier customer, and delays in volume manufacturing for a version of its SN 16000 product.

According to Max Schuetz, analyst at Thomas Weisel Partners, “[Sycamore’s] high customer concentration reared its ugly head this quarter.” Williams and 360networks were the carriers that materially contributed to the weakness in orders, Schuetz said. Last quarter, Williams represented about 50% of Sycamore’s total revenues.

“Based on carrier retrenchment and longer sales cycles, we do not look for a swift return to past order levels in the near term,” Schuetz said.

About $20 million of the revenue shortfall can be attributed to delays in shipment of the 512x512 port version of the SN16000 due to a technical issue with a grooming ASIC, Schuetz said. Sycamore will not be able to manufacture the product in volume until next quarter.

Sycamore is also faces a major product transition, as its SN8000 transport product and 64 port SN16000 cross connect “have reached the end of their market life. Incremental demand visibility now rests entirely” on the SN10000 and 512-port grooming SN16000, Schuetz said.

Sycamore said it will not generate cash for the next several quarters. It plans to provide more detailed financial guidance when it reports third-quarter results on May 15.