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Vitesse Eliminating 12 Percent of Its Workforce

In a massive restructuring effort designed to cut costs and eliminate overlap, Vitesse Semiconductor Corp. is dropping 12 percent of its workforce. Over 90 people will be laid off in cuts equally distributed through the semiconductor manufacturing company’s headquarters in Camarillo and its design centers in New Jersey, Colorado and Texas. The eliminated positions primarily deal with transport design and product testing and stemmed from the company’s decision to consolidate its telecom and networking divisions into one business unit. In Vitesse’s recent second quarter 2005 conference call, company President and CEO Louis Tomasetta anticipated that the savings from these cuts will be in the neighborhood of $2 million to $2.5 million in the third quarter alone, compared to the same period in the previous year. Cris Gardner, the vice president and general manager of Vitesse’s newly consolidated networking division, maintained the layoffs were the result of the overlap that often occurs in a large business such as Vitesse. With approximately 750 employees scattered worldwide, the company often found two of its departments selling practically identical chips to the same company. “We had a fair amount of overlap in product development and marketing. There were several product areas where the products that we were developing were almost duplicative. We combined these divisions from a marketing and a product development standpoint and rationalized the product road maps to maximize our efficiencies,” Gardner said. “It was challenging to communicate between divisions. If you looked at the transport and networking divisions, at least six of our top 10 customers had overlap.” Vitesse has endured a difficult financial stretch since the semiconductor bust of 2000, having failed to turn a yearly profit since that year. However, in the company’s most recent financial guidance, Tomasetta said that the company expects to be cash neutral for the second quarter and operating break even by the third quarter. Timothy Kellis, a senior analyst at the Stanford Financial Group, continues to maintain a buy rating on Vitesse, despite the recent beating that the company’s stock has taken in the market. The stock reached a 52-week low on April 27, trading at one point during the day at $2.01 a share. It ultimately closed at $2.05 per share, down substantially from a 52-week high of $5.65 a share, registered on June 8, 2004. “The stock has obviously been hit pretty dramatically. I attribute a lot of the weakness to more of the big picture stuff than what’s going on with them Vitesse in particular. The company has revamped themselves pretty well,” Kellis said. “Vitesse has one of the strongest management teams out there. Louis Tomasetta is a visionary in tech and communications. If you look at what they’ve done since to refocus their efforts, they’ve provably been more successful than almost any of the other companies in their sector.” Kellis expects the company to return to profitability in the December quarter of this year, but in its recent earnings statement Vitesse continued to bleed red ink. Vitesse’s net loss for the second quarter of fiscal 2005 was $28.9 million or $0.13 loss per share, compared to a net loss of $17.5 million or $0.08 per share in the second quarter of fiscal 2004. Revenues for the company were also down this quarter, as it claimed $47.2 million in sales, compared to $56.0 million for the comparable period last year. Gardner maintained that the massive losses are the result of a company strategy to refocus the business, a strategy that has yet to show up in its earnings statements. “We haven’t really seen outstanding revenues because our new products have only been introduced over the last 12 months. Currently, they’re just starting to generate substantial amounts of revenues. We can see this trend accelerating,” Gardner said. “With restructuring, we had a couple of goals: one was to reduce our costs. We want to hit cash break even this quarter and pull completely break even in the September quarter. Our other goal was to align our organization and resources with our new target markets.” However, with the company’s financial status remaining uncertain, many analysts believe that it remains a potential target for a merger or acquisition. “Consolidation is likely going to come sooner rather than later, given the fact that we’re currently seeing a slowdown in the end markets. Then there’s also the fact that many semiconductor companies like Vitesse just aren’t meeting the expectations,” Sandy Harrison, the director of research and a senior analyst at Pacific Growth Securites, said. “Vitesse has a nice niche in the storage market and their Ethernet products. They have a solid management team and they could make a nice contribution to a larger company or perhaps be rolled up into a group of several similar businesses.”

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