Investors raged on UTStarcom Inc. after the company announced it will cut its worldwide work force by 17 percent to counteract a drop in its China business. The company’s stock plunged 30 percent after the announcement to $7.31 per share-the lowest stock price in UTStarcom’s history.
The company said its PAS business in China will decline by 40 percent to 50 percent from last year to around $2 billion. The company previously expected the business to drop by 30 percent.
“While we are pleased with the initial momentum of our globalization efforts, we are also realistic that the development of new markets and new products takes time to cultivate consistent revenue streams,” said Hong Lu, UTStarcom’s chief executive officer and president.
As a result of the China declines, UTStarcom said it will cut 1,400 employees, or 17 percent of its global work force, during the coming months. The company said it will also outsource more of its supply chain and information technology operations. UTStarcom said the moves would cut its operating expenses by $40 million per quarter by the fourth quarter of 2005.
“Alongside our continued efforts to diversify our product portfolio and increase our international presence, we are taking the necessary steps to realign the company to better meet the demands of our new market reality,” said Mike Sophie, chief financial officer for UTStarcom. “We believe the restructuring plan we announced today will allow us to reduce break-even revenues for each product line, align our investments with key growth opportunities and facilitate the process of globalization. The primary goal of these improvements is to optimize our cost structure and allow UTStarcom to deliver consistent and sustainable profitability for our stockholders beginning in the second half of 2005.”
UTStarcom posted net sales in its first quarter of $902 million, a jump from the $622 million in the same quarter a year ago. The company’s net income rolled in at $38 million, a decline from $55 million a year ago.
In other job news, Marconi Corp. said it will reorganize its business and cut 800 U.K. jobs.
“The new leaner organization that we have announced today allows us to maintain our product roadmaps, focusing our research and development expenditure on our key product lines whilst making significant cost savings mainly in overhead areas to underpin profitability,” said Mike Parton, Marconi’s chief executive officer.
