ALLENTOWN, Pa. — In a major move to downsize its operations, Agere Systems Inc. today announced it will lay off an additional 4,000 workers and close down a wafer fab in Madrid, Spain, by the end of the year. Agere said it is now attempting to sell the plant.
Agere–formerly Lucent Microelectronics–said it is also “rationalizing” under-utilized manufacturing capacity at facilities in Orlando, Fla., and in Pennsylvania at locations in Allentown, Breinigsville and Reading. The massive restructuring includes consolidation of what the company calls several “satellite manufacturing sites” as well as leased corporate offices.
“We built our business to serve a growing market, which is instead deteriorating,” said John T. Dickson, president and CEO at Agere, which was spun out of Lucent Technologies Inc. earlier this year. “We're continuing to take significant measures to adapt our business in the face of changing conditions.”
To cover the plant closing, layoffs, and measures aimed at downsize operations, Agere said it will take charges up to $900 million, of which $725 million will be recorded in the current fiscal quarter, which ends June 30. The remainder of the charges will be applied in the next three quarters, according to officials at the Allentown-based company.
The elimination of 4,000 jobs comes two months after Agere announced it was cutting 2,000 employees while posting a 13% sequential decline in revenues in the last fiscal quarter, ended March 31 (see April 24 story). About 1,000 of the new job cuts will come from the closing of Agere's Madrid plant. At the end of March, Agere employed 18,500 workers. The two rounds of layoffs will reduce Agere's employment by 32% from the end of the last quarter.
Agere said it expects to the restructuring and workforce reductions to result in a pre-tax savings of $520 million on an annual basis.
The company also cut its estimates for revenues in the current fiscal quarter to $920 million, which will be a 23.3% sequential drop from $1.2 billion in Agere's fiscal second quarter, which ended March 31. Agere had been projecting a 20.8% drop in the current quarter to $950 million.
During a conference call with analysts this morning, Agere's Dickson refused to provide any guidance for the upcoming quarter, which ends in September. The only prediction offered by Agere executives in the conference call was that revenues would most likely “be lower in the September quarter.”
“That is as far as it goes at this stage,” said Dickson, responding to analysts' attempts to get some kind of forecast from the CEO. “We are not 'flying blind,' but we have very, very limited visibility from our customers, just as they have very limited visibility from their end customers.” Dickson said the company would provide new guidance for the next quarter when final results are issued for the current period on July 25.
With lower revenues, Agere said it now anticipates a pro forma net loss of $0.08 per share, excluding charges for restructuring. Including a planned write-down of inventories and deferred recognition of tax benefits on losses, Agere said its pro forma net loss will be $0.30 per share-again excluding the restructuring charges.
In the current quarter, charges for layoffs and other cost-cutting measures will include $470 million for restructuring of business operations with $145 million comprising of cash charges for severance payments, contract terminations and non-cancelable lease obligations. In addition, charges in the current quarter will include non-cash charges of $255 million for inventory write-down to covers a range of products, including a large portion of devices for optoelectronics applications.
During today's conference call with analysts, Dickson said the Madrid facility is currently operating at less than one-fourth its capacity. The fab was built by AT&T Corp. in the mid-1980s. It is producing devices with older 0.3-, 0.35- and 0.5-micron CMOS processes for networking and communications applications. Demand for those products fell off much sharper than expected in the first half of 2001, Dickson told analysts.
Agere is cutting capital spending plans to below its current depreciation and amortization levels, which is running in the $100-to-150 million range per quarter, said Mark T. Greenquist, executive vice president and the company's chief financial officer.
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