Vitesse CEO Sets Sights on Consistent Profitability

With a one-year extension on his employment contract in place, Vitesse Semiconductor Corp. CEO Christopher Gardner remains focused on achieving goals of sustainable profitability and strategic expansion. Gardner took the helm of the Camarillo company in 2006 during a period of turmoil that saw former executives leave in disgrace due to a stock option scandal, a delisting from the NASDAQ exchange and quarter after quarter of poor financial results. While hesitating to use the word turnaround for what’s happened at Vitesse, Gardner says the company’s headed in the right direction by providing semiconductors for high-speed networks supporting smartphones and other portable devices. Its customer list includes such tech titans at Cisco Systems Inc., Alcatel-Lucent SA, Nokia, Hewlett Packard and IBM. Gardner has had a 25-year career at Vitesse. He was named as interim chief executive in April 2006, and a month later was appointed to the position permanently. His employment contract was extended on Feb. 12. The contract period was for one year, rather than two years, as had been done in the past. “We did it for one year to make it simple and sign it under the same terms and to move forward,” Gardner said. David Kang, an analyst with B. Riley & Co., who follows Vitesse said, “He has done a good job of setting 2012 as the year they will start to show some growth.” Gardner’s goals are two-fold: to achieve sustained profitability and to expand into markets where its switches, amplifiers and other components make the most impact, such as packet networks that transmit data. The first goal has been elusive in a tough market. Vitesse will post a net income for a quarter and then fall back to net losses in succeeding quarters, Gardner said. The company posted positive income results in the third quarter of its 2011 fiscal year with $6.5 million. In the first quarter of fiscal year 2012, Vitesse reported a net loss of $844,000. In the same period the prior year, the company reported a net loss of $7.7 million from the same period in the prior year. In spring 2011, Vitesse returned to the NASDAQ exchange. Sustained profitability is tied to the products Vitesse gets into the market. There were 30 new components released in 2010 and another 23 components in 2011. The long-term outlook hinges on smartphones and other devices transitioning from 3G networks to the faster 4G network, a switch that Vitesse will provide the chips for. “As that technology gets deployed we have the opportunity to grow the company substantially and make a bigger impact,” Gardner said. Vitesse got a jump on larger competitors Marvell Technology Group and Broadcom Corp. and snagged deals with Cisco and Alacatel. It won the business because it offers a “a highly differentiated product,” Kang said. As it was developing its product, management at Vitesse had to cut costs. It laid off workers in spring 2009 and again in September 2011, when the company eliminated about 10 percent of its workforce, or 46 positions, and ended a lease on office and warehouse space in Camarillo. Reflecting on his career at Vitesse, Gardner said he was not prepared for what he termed his “battlefield promotion” that came via a late-night phone call. At the time, Vitesse was among a number of public companies throughout the country being investigated by the U.S. Securities and Exchange Commission for backdating of stock options. Former CEO Louis R. Tomasetta, former Chief Financial Officer Yatin Mody, and Eugene F. Hovanec, a former executive vice president, were fired from the company in spring 2006. The SEC filed civil fraud charges against Tomasetta, Mody, Hovanec and former manager and Director of Finance Nicole Kaplan in December 2010. Vitesse settled the fraud case with the SEC by paying a $3 million civil penalty. The distractions of the backdating scandal cost Vitesse upwards of $40 million in attorney, accountant and advisor fees. At the same time, the company set about repositioning itself to better serve its markets, Gardner said. “We caught the ball well,” Gardner said. “There was a period that we could have gone out of business or had some kind of (bankruptcy) filing.”