Reverberations from a slowdown in the telecommunications industry are being felt in the San Fernando Valley where high-tech firms that supply bigger companies are bracing for declining revenue and smaller profit margins. Nortel Networks Corp. has projected a $19.2 billion second-quarter loss and Lucent Technologies Inc. has announced it will lay off 1,000 people. Alcatel S.A. and Cisco Systems say they plan to reduce purchases and cut back on expenses. Experts say these moves could severely impact Valley firms that provide components and other hardware to these telecom giants. Bob Willens, an analyst with Lehman Brothers Inc., said Nortel’s massive write-down $12.3 billion of that $19.2 billion loss is an example of what’s in store. “There are going to be huge write-downs throughout the industry,” he said. The loss in value of assets will continue to impact an industry that’s been already rocked by slowing demand and increasing costs, he said. “It’s the whole industry, so you can’t say Nortel or the others are causing it. They’re being affected like everyone else,” said Susie Nemeti, a spokeswoman for Nortel supplier and fiber optics maker Optical Communication Products in Chatsworth Camarillo-based chipmaker Vitesse Semiconductor Corp. could be particularly hard hit, since about 90 percent of its sales are to Nortel, IBM, Lucent, Alcatel and Cisco. Lucent alone accounts for 15 percent of its total sales. Last year Vitesse posted $27.9 million in net income on $441.7 million in total sales. For the quarter ending March 31, Vitesse lost $11.2 million on revenues of $121.8 million, compared to a net loss of $16.9 million on revenues of $100.3 million during the same period last year. A net loss in 2000, however, was the result of a $45.6 million one-time charge the company took for the acquisition of software maker Orologic Inc. Vitesse last month announced it would cut 12 percent of its staff of 1,280 after it projected a pro forma loss of 6 cents a share in the second quarter, instead of the 3 cents analysts had expected. The company cited weak demand and key order cancellations. E. Michael Thoben III, CEO of Interlink Electronics Inc., a maker of broadband and consumer electronics in Camarillo, said local companies will be affected in one way or another by order cutbacks by Nortel, Lucent and others. “It’s hard to imagine that these companies won’t be impacted,” he said. Thoben said his firm deals with business telecommunications components, thus is not directly impacted by troubles at Nortel and Lucent, but it is not immune to the tech industry’s current slide. For the quarter ending March 31, Interlink had $733,000 in net income on revenues of $7.3 million, compared to $712,000 on revenues of $7.7 million in the same period a year earlier. But the company expects a second-quarter loss of between $200,000 and $300,000, based on lower revenue figures for the period. Lee Branst, a telecommunications consultant with Caracal Communications in Los Angeles, said companies like Westlake Village-based Diodes Inc. have an advantage due to their diversification as far as markets are concerned. “They have half their business in the U.S. and the other half in Asia, with a number of different companies,” he said. Still, Diodes’ fortunes have been impacted by the industry downturn, evidenced by a sudden drop in net income in the quarter ending March 31 to $521,000 on $25.7 million in revenue, compared to $3.1 million on revenue of $27.4 million during the same period a year earlier. The first quarter of 2001 was the company’s 44th consecutive profitable quarter, though Branst says he’s unsure how much longer that good fortune will last. In 2000, Diodes earned $14 million in net income on revenues of $118.5 million. What’s more, the tech industry’s woes figure to worsen, says Mark Donahoe, an analyst with U.S. Bancorp Piper Jaffray. “There isn’t any good news on the horizon and it’s going to get tougher out there,” Donahoe said. “That’s why you see the big players cutting back as much as they can. “The smaller companies are going to take a big hit and a lot them aren’t going to be around.” Jerry Aarons, president of Arco Electronics of Agoura Hills, said his firm has already been impacted and he fears worse times ahead. “We do a lot of business with suppliers of Nortel and Cisco and we’re holding our own, but it’s hard to tell what’s going to happen,” said Aarons, whose company makes capacitors and electronic filters for telecommunications. Branst said the tech industry shakeout is testing the mettle of many local startups. “There were these startups last year that were getting new offices and new buildings and now they’re looking for buyers,” he said. “But unlike the dot-com meltdown, this industry has a solid product and some companies will go on in some form or another.” Some like Calabasas-based privately held startup E2O Communications, which manufactures fiber optic transceivers for fiber optic networks, could face tough times ahead, Branst speculated. “That entire fiber optic and wireless industry is going through a rough time,” he said.
