Telecom Firms Seeing Gradual Earnings Improvement By SHELLY GARCIA Senior Reporter Several local telecom suppliers in the greater San Fernando Valley showed improved results in their most recent quarters, at least compared with the prior consecutive quarter. But many in the industry are stopping short of calling the results an indication that the worst is over. The oversupply that threw the telecom sector into its downward spiral seems to be continuing. And a number of the equipment suppliers and semiconductor companies that service these carriers have begun to report troubling numbers for the first three months of the year, at least on the national level. Those trends could mean there is more erosion to come. “We’ve said for some time we thought their estimates for the second half were much too high,” said Chuck Hill, director of research for Thomson Financial/First Call. “A lot of estimates were based on people looking back at how the tech sector responded in recovering from different recessions. The problem is this is a different recession. There’s no prior history to key off of.” Nevertheless, Hill said, wireless carriers are expected to reduce their losses in all four quarters of 2002. Communications equipment companies, too, are expected to lessen their losses in the first and second quarters, compared to a year ago, and to “swing into positive territory in the third and fourth quarters of the year.” Semiconductor companies should also experience positive earnings in the third quarter and the fourth. That comes as good news to an industry that has, in many cases, seen revenues cut by 90 percent and bled red ink for nearly a year now. But as the year unfolds, these companies’ financials will be compared to extremely low prior year numbers, and improvement does not necessarily indicate strength. Such is the outlook in the greater San Fernando Valley as well, where many telecom companies are two steps removed in the distribution chain from telecom carriers. Many of these companies are beginning to see improvement in their financial picture as compared with the most recent consecutive quarter, but the results are still dramatically down from a year ago. Vitesse Semiconductor Corp., which supplies circuits and other components to telecom and datacom equipment makers, is expecting to see its revenues for the second quarter ended Mar. 31, 2002 increase by 5 percent to 10 percent over the first quarter of 2001. The Camarillo-based company said it expects to break even by the end of the calendar year. “This is going to be achieved through a combination of cost cutting as well as revenue growth,” said Yatin Mody, vice president and controller at Vitesse. In its first quarter 2002, Vitesse’s most recent complete quarter ended Dec. 31, the company reported revenues of $39.1 million and a net loss of $24.3 million or $0.12 per diluted share. But Vitesse’s improved picture looks considerably different when compared with the year-ago numbers. In the first quarter of 2001, Vitesse reported net income of $47.6 million or $0.25 per share on revenues of $165 million. The picture is pretty much the same for the other tech companies in the Valley. MRV Communications Inc., a maker of network infrastructure components, said it expects revenues for the first quarter of the company’s 2002 fiscal year ended Mar. 31 to be in the range of $71 million to $76 million, about even with its fourth quarter, 2001 revenues of $73.5 million, with a somewhat improved earnings picture MRV lost $2.1 million in the last quarter of 2001. However, MRV reported revenues of $97.6 million in the final quarter 2000, and net income of $4.5 million or $0.06 per diluted share. In announcing its fourth quarter results and guidance going forward, the company said it had improved its inventory levels and cash position and expected continued improvement. “We remain optimistic and committed to continuing these positive trends going forward,” said CFO Shay Gonen. The improvements MRV and Vitesse are seeing have led both companies to revise their guidance upward for the coming year. MRV bumped up its revenue guidance for the full year to a range of $315 million to $355 million, compared with earlier guidance of $300 million to $350 million. For the full year 2001, MRV reported revenues of $332.8 million and a net loss of $326.4 million or $4.27 per share. Vitesse’s Mody said the company had earlier given guidance for the quarter ended Mar. 31, 2002 of zero to 10-percent revenue growth and recently adjusted it upward to 5 percent to 10 percent. For Vitesse, however, that optimism is based less on the expectations for the industry than it is on a wholesale restructuring of the company’s business. Vitesse has moved from a supplier of commodity semiconductors to a maker of layer 2, 3 and 4 components switch fabrics, network processors and traffic management components that represent the kinds of upgraded equipment companies are moving toward. “We’ve got a number of design wins for systems that have never been shipped, so we don’t have the inventory issue that has plagued the level 1 devices because they were oversold,” said Mody. Indeed, Mody is not particularly confident that capital expenditures will improve dramatically in the commodity semiconductor sector. But what capital expenditures those companies do make are likely to come in the sectors that Vitesse has moved into, providing greater potential to improve the company’s financial picture. Diodes Inc., a Westlake Village semiconductor maker, has not issued guidance for its first quarter. However, in February, company officials said they thought the worst is over. “While 2001 proved to be a universally challenging market climate for semiconductor companies, we believe we have passed the worst of this correction and expect the industry climate to gradually improve in 2002,” said C.H. Chen, Diodes CEO, in announcing the company’s fourth quarter results. For the fourth quarter ended Dec. 31, 2001, Diodes reported revenues of $25.8 million, a sequential increase of 13.6 percent over the third quarter last year. The company decreased its loss to $76,000 or $0.01 per diluted share, compared with a net loss of $847,000 in the third quarter of the year. At least one company, Optical Communication Products, Chatsworth-based maker of fiber optic components, was reluctant to venture an estimate of future results. In announcing their most recent quarter results, company officials said the outlook for carriers is still too murky to venture a guess about future quarters. The company saw its revenues fall to $8.8 million in the first quarter of fiscal 2002 ended Dec. 31, from $14.9 million in the fourth quarter of its fiscal 2001 year. The company also reported a net loss of $200,000 in its most recent quarter, an improvement over the $3.3 million OCP lost in the fourth quarter of 2001.
