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Thursday, Mar 28, 2024

TECH—Tech Sector Strategies to Deal With Slowdown Vary

When revenues plummeted early this year at chipmaker Conexant Systems Inc., workers at the company’s Newbury Park plant braced for layoffs. But the ax never quite fell. Instead, the plant was idled for a week in January, an unpalatable alternative to letting workers go completely. The tech industry’s bust had finally hit Conexant which struggles, like other Valley tech firms, to adjust to an atmosphere in which bottom lines continue to head south. While many tech companies are laying off workers by the hundreds, some Valley firms are looking elsewhere to bolster their value and bottom line. Simi Valley-based Celetron International Ltd. began digging deeper into its Asian markets, particularly China, where it hopes to bolster sales of its electronic components. Westlake Village-based Franklin Telecommunications Corp. also avoided layoffs of its 44-employee staff by doing something it never thought it would do: agree to license its Internet telephony equipment. Company CEO and Chairman Frank Peters said Franklin has long been against licensing its equipment for fear that competitors would copy and issue their own knockoff versions. “We felt it could hurt our technological advantage,” Peters said. Franklin was among the first to get into the Internet telephone service in 1997 when it began offering its Voice Over Internet Protocol service to U.S. troops in Bosnia. The service allowed soldiers to contact their families via an Internet connection that was linked to a so-called mobile earth station transmitter which in turn linked up to communications satellites. The company, however, has been hit hard by the tech downturn, having lost $6 million in the nine months ending March 31. But companies like Conexant, Celetron and Franklin may be the exceptions to an old rule. Lee Branst, an analyst with Caracal Communications in Los Angeles, said most tech firms have little choice but to cut back on their workforce. “You have to reduce your costs and layoffs are the biggest way to do that,” he said. Chatsworth’s fiber optics manufacturer, Luminent Inc., for instance, last month announced plans to lay off about a third of its 1,800 employees, as the company struggled with declining revenues. For the quarter ending June 30, Luminent lost $66 million on revenues of $41.1 million, compared to a $22.4 million loss on $48.2 million for the same period last year. About half of the $66 million loss was due to a one-time charge for the cost of layoffs and restructuring. In May, Camarillo-based Vitesse Semiconductor Corp. said it would eliminate nearly 150 jobs to reduce costs. The company also agreed to reduce the salaries of its management staff by 10 to 25 percent. But it wasn’t enough. The company, whose core semiconductor business has taken a beating, tried to push further into the broadband and telecommunications business by acquiring Versatile Optical Networks Inc. in June. But the move into fiber optics isn’t likely to improve Vitesse’s bottom line any time soon as the telecom industry continues to nosedive, Branst said. “The telecom sector is as bad as I’ve seen and there’s no sign that it’s going to improve,” said Eric Chen, an analyst for J.P. Morgan Securities. Chen, like many analysts, said the sector’s rapid growth and sudden collapse has startled even veteran observers. Runaway spending by telecom firms eager for equipment to build fast growing local broadband networks and business data systems fed growth in the industry in the late 1990s, Chen said. But when the overall economy began heading south, the telecom spending stopped just as quickly. Companies like Lucent and Alcatel were flooded with surplus equipment. Lucent, which had laid off 19,000 people at the beginning of the year, added another 15,000 to the layoff list last month. “The dot-com meltdown is nothing compared to this,” said Branst. While Conexant’s plant idlings kept its 450 Newbury Park workers on the job, it didn’t stop the company from laying off another 450 employees at its other facilities. “Our employees are very important to us and we try to be very conscientious when it comes to them,” said Gwen Carlson, a spokeswoman for the company. “But layoffs are always a last option.” The idea of idling the Newbury Park plant for a week was as much a technical as it was an economic decision, Carlson said. “A wafer fabrication facility has to be run 24-7 and you can’t slow it down for shifts,” she said. “There are many different steps in the process and it involves time-consuming processes that can’t be slowed midway through.” Still, Carlson said, the company realized that an idling would be more cost-effective than laying off its workers, thus impacting productivity and efficiency. The idling of the plant three times during the year, along with the scheduled layoffs, would save the company $375 million this year, Carlson said. Job cuts, however, will continue to be the norm, said Caracal’s Branst. “Nobody’s talking about a recovery,” he said. “They’re waiting for things to bottom out and it hasn’t happened yet.”

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