Terayon Communication Systems, Inc., a Santa Clara, Calif. supplier of cable modems, today announced that it expects revenues and earnings for the fourth quarter to be significantly less than previously anticipated, due to thecancellation of orders late in the quarter and an unexpected slowdown in the growth of orders for its products by existing and new customers.
As a result of the current economic outlook, the company said it believes that its customers have had sufficient inventory levels as they face uncertainty in the growth of deployment rates in 2001. The company, which reported revenues of $38.7 million in the fourth quarter a year ago, said it expects revenues in fourth quarter 2000 to be in the range of $60 to $63 million, below its previous internal forecasts.
Terayon grew its operating expenses and inventory in the fourth quarter in anticipation of substantially greater revenue growth, consistent with the company's performance in earlier quarters this year. Additionally, there is a possibility that Terayon may incur vendor cancellation charges of approximately $20 million in connection with the discontinuation of one of its DOCSIS cable modem products, the company said.
Without these special charges, Terayon expects to report a pro forma loss for the fourth quarter 2000 of between $34 and
$36 million, or a loss per share of 46 to 49 cents. Including these cancellation charges, the pro forma loss would increase by approximately 28 cents per share. Based on these results, the company will be revising downward its internal operating plan for 2001, it said.
Terayon CEO Zaki Rakib said, "We are very disappointed with these results. Based on our assessment of Terayon's core competencies and our outlook for the market segments that we serve, the Company has decided to reorganize around
two industry segments: highly differentiated, high margin broadband infrastructure equipment and high volume, lower margin customer premise equipment. We believe that this reorganization will allow Terayon to better serve its customers and enhance shareholder value going forward by allowing
the market to better assess the value of its businesses.
"Beginning in the first quarter of 2001, we will also undertake measures to re-align the company's costs of operation to the new organization."
Furthermore, Mr. Rakib added, "With the recent achievement of milestones in the Company's development of advanced physical layer technology, Terayon intends to create a separate business focused on next generation, DOCSIS system-on-the-chip solutions."