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Vitesse Plans More Cuts, Closures After Brutal Quarter

Vitesse Plans More Cuts, Closures After Brutal Quarter By CARLOS MARTINEZ Staff Reporter Vitesse Semiconductor Corp., on the heels of another severe quarterly loss, is closing one of its plants, a move that will result in the layoff of about 100 workers. The company will discontinue so-called wafer manufacturing in its Colorado Springs facility by September, and it also plans to discontinue optical module production, which is located at the company’s headquarters in Camarillo. The moves are the latest in a long string of efforts to cut costs and restructure the business to focus on those sectors of chip manufacturing with the greatest promise of returns. “Our decision to exit the optical modules market was tough, but we realize we can’t run an operation at a loss with no prospects of turning that around,” said Lou Tomasetta, the company’s CEO. It was just five years ago that the company built the $70 million state-of-the-art plant in Colorado Springs to produce high-end wafers for what was, at the time, a telecommunications industry hungry for the latest and fastest chips and processors. Today, the demand has virtually disappeared, taking a number of chip makers with it. Jag Bolaria, an analyst with Linley Group, said Vitesse’s struggles with its high-end chip manufacturing business is typical for the industry, which has been in a severe recession for the past two years. “The (wafer fabricating) business is extremely costly, and it’s been a drag on their business,” he said. For the company’s third quarter ending June 30, Vitesse reported a $95 million loss or $0.47 per share, on revenues of $39.7 million. That compares with a loss of $735.9 million or $3.71 per share on revenues of $38.9 million for the third quarter of 2002. In announcing its results, Vitesse said that it had decided to discontinue its optical module manufacturing and seek a buyer for the operation. If it doesn’t sell the operation, Vitesse said it will close down operations and lay off the workers in the segment by September. The company did not disclose the number of workers that might be affected. “The decision to exit the optical module business was very difficult,” Tomasetta said. “While we were more optimistic about growth prospects in this area a year ago, the overall market for these products has failed to materialize in a significant way.” Tomasetta said the company has been evaluating the Colorado Springs facility for some time, and has been unable to locate a buyer for that facility. It too will close down by September. A third try This is the third time Vitesse has had to reevaluate its business model and make major changes in its direction. Vitesse had started out in 1987 as a maker of chips for supercomputers, but when that market tanked in 1994, the company turned to the telecommunication sector which was experiencing strong growth at the time Companies like Alcatel, Cisco Systems, IBM, Fujitsu and others were its primary clients, both here and overseas. But by 2000, the market was starting to slide, and last year, the company shelved plans to develop the 10 gigabit ethernet processor, citing high development costs and a sluggish market. After reporting a profit of $28 million in 2000, Vitesse lost $11 million in 2001. By last year, the company reported its largest loss ever $883.5 million, on revenues of $162.4 million. In all, Vitesse cut nearly 400 jobs in the last two years. Last year’s performance was attributed to restructuring costs due to layoffs in manufacturing and in research and development. Among the projects abandoned was the 10 gigabit processor. Betting on data storage Now Vitesse has turned its efforts to making chips for local networks and the data storage sector. “We’ve done this twice before and it gets easier when you know where you want to go,” Tomasetta said. The chips for those markets now make up the bulk of Vitesse’s total sales and sales in the segment are growing by about 10 percent every quarter. Chips for the telecom market, which had dominated sales, now account for just 15 percent of all sales. “We have to constantly keep things in the pipeline because we know that all of our existing products from three years ago are dead,” Tomasetta said. “There’s no market for them.” Tomasetta said he is seeing gradual improvement in visibility and incremental revenue growth. “We expect that revenues from continuing operations will increase by approximately $3 million in the fourth quarter of fiscal 2003,” Tomasetta said. “We are also forecasting our losses to decline.” Vitesse expects to lose between $0.09 and $0.12 per share in the fourth quarter of 2003 on a GAAP basis. Hans Mosesman, an analyst with Prudential Securities Inc., said many chipmakers have been hit hard by the latest downturn and only those that can adapt and diversify will be able to survive. “A lot of those markets are not coming back and companies need to recognize that,” he said.

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