Telecom Suppliers Giving Up on ’02, Counting on ’03 By CARLOS MARTINEZ Staff Reporter Back in January, telecom suppliers in the 101 Tech Corridor thought for sure they’d be rolling out new equipment for their customers by the third quarter of this year. However, as the economy continues to sputter and investor confidence remains at an all-time low, the same companies are now placing their hopes on a recovery sometime in 2003. Firms like Vitesse Semiconductor Corp. and Internet Machines Corp. say they have a veritable laundry list of new products in the pipeline and have postponed their arrival in the marketplace to coincide with what they still believe will be an upturn in their industry next year. Faster, smaller and better network processors, switchers and optical modules are ready for shipment, but there are few takers just yet, said David Readerman, an analyst and partner with Thomas Weisel Partners. “It’s still a tough market out there if you’re a telecom supplier,” he said. “It depends what segment of the tech industry you look at, but overall you could be looking at recovery in the third or fourth quarter of 2003.” Camarillo-based Vitesse, which supplies chips and components to telecom equipment makers, is looking to unveil its high-end network processors by year’s end, along with a number of optical components. In May, the company announced it would delay releasing its 10 gigabit network processor indefinitely due to lack of demand. Vitesse responded to the weak economy and a troubled tech market last year by eliminating 300 jobs and by moving away from chip manufacturing to optical components. Vitesse CEO Lou Tomasetta said the company has seen some steady improvement in sales in recent months, but does not expect a full recovery until at least early next year. Because the company serves networking equipment makers like Alcatel, Lucent Technologies Inc., IBM Corp. and Nortel Networks Inc., it has been hard hit by the tech downturn. Likewise, California Amplifier Inc. of Camarillo, which cut its staff from 706 to 363, is now looking to issue new satellite communications components once the market improves. The quick drop in the wireless market last year forced California Amplifier to rethink its strategy and focus more on its satellite components business. “We were hoping we’d be in the middle of recovery about now, but we realize that have to look at ’03,” said Greg Dare, Cal Amp’s marketing manager. Nevertheless, in its most recent quarter ending May 30, Cal Amp managed to improve over the same period a year earlier. The company reported $1.5 million in net income on revenues of $22.5 million compared to $71,000 in net income on revenues of $20.8 million for the same period last year. Although Westlake Village-based Diodes Inc. went through its own rough period in 2001 when it laid off about 300 people, CFO Carl Wertz said his company has benefited from its increased focus on the Asian market, which grew from about 20 percent to 47 percent of all revenue this past year. “We’ve had much growth there and it has helped us improve overall,” Wertz said, noting that the company is still optimistic about an overall economic upturn in early 2003. For the quarter ending March 31, Diodes reported $208,000 in net income on revenue of $26.9 million, compared to $521,000 in net income on revenue of $25.7 million for the same period last year. Despite optimism on the part of some, there is plenty of room for improvement. With Motorola Inc. posting a record $2.3 billion net loss in the second quarter, its sixth consecutive unprofitable quarter, recovery is nowhere near, said Readerman. “There is little to show a strong trend toward a fast recovery right now,” he said. Semiconductor firms that had been forecasting a turnaround by year’s end are now predicting continued flat numbers through early 2003. The Semiconductor Industry Association has reported a continued decline in PC chip sales and some strength in the non-PC chip markets of digital signal processors and flash memory chips. Then last week, the tech industry received worse news when the world’s biggest chipmaker, San Francisco-based Intel Inc., reported it would cut 4,000 jobs or about 5 percent of its work force. Intel, like other top technology firms, has suffered from slow sales and a declining personal computer market, said Justin McNichols, an analyst with Osborn Partners. “They’re doing as well as can be expected in this kind of a down economy,” he said. But Vitesse, like others, is banking on new products developed by its research and development unit to take advantage of the upturn when it does occur. “The whole communications market is like a big pyramid,” said Vitesse’s Tomasetta. “Recovery is going to come from the bottom up and we’re starting to see signs of it, but it will take time.” Likewise, Chris Hogenboom, president and CEO of Agoura Hills-based Internet Machines Corp., said recovery has been gradual while demand for equipment has improved, thanks to consumer electronics sales. “What’s got the telecommunications industry in a funk right now is that companies that are in a position to consume new equipment don’t have the balance sheet to support that equipment,” he said. Hogenboom said he had hoped the recovery would be in full swing by now while his company focuses on rolling out its first products by year’s end. The company, which raised $40 million in startup funding in 2000, is in a good position to develop its high-end chips embedded in Internet routers and switchers to speed up the flow of data through the Web. “Access to capital now is extremely difficult, so we’re very fortunate that we were able to raise the money that we raised,” he said.
Telecom Suppliers Giving Up on “02, Counting on “03