Dave Huber may be a genius when it comes to physics, but his business judgment has been a disaster so far.
It was Huber who, while working at General Instruments in the late '80s, came up with a way for phone or cable companies to run much more data through their fiber-optic cables. When the company decided it wasn't interested in the technology, Huber got the patents and struck out on his own.
His founding of Ciena in Linthicum, Md., was perfectly timed to ride the Internet wave. Huber's venture backers wisely insisted that Huber hire a seasoned chief executive. When Ciena finally went public in 1997, it raised $3.4 billion in that year's hottest IPO.
Huber, however, was not satisfied. He saw the future of telecom in all-optical networks, including new optical switches, that would operate much less expensively. To develop them, he demanded he be allowed to run his own lab, with its own budget, reporting only to the board of directors. When the board said no, he bolted.
With the proceeds from his $300 million in Ciena stock, Huber moved down the road to Columbia and raised $400 million in venture capital to start Corvis. The IPO in July 2000 might be said to be the high-water mark of the telecom frenzy, raising $1.1 billion for a company that hadn't posted a dollar in revenue. Within days, the stock price climbed 60 percent, giving Corvis a market value of $28 billion, exceeding that of General Motors and briefly propelling Huber onto the Forbes list of richest Americans, with a net worth of $7 billion.
The loss of tens of billions of dollars in shareholder value during the ensuing telecom bust might have humbled most chief executives. But not Huber. Over the next four years he blew through more than $500 million in cash due to operating losses, misguided investments and a messy patent fight with Ciena.
In early 2002, Corvis announced the purchase, for $90 million in stock, of Dorsal Networks, a start-up that made undersea fiber-optic gear, was still unprofitable, and was more than 30 percent owned by none other than Dr. David Huber.
And the next year, after one of Corvis's three "launch" customers, Williams Communications, went bankrupt and another, Qwest Communications, became engulfed in scandal and losses, Corvis decided to come to the rescue of the third, Broadwing Communications, by purchasing it for $129 million in cash and the assumption of $375 million in debt. Magically, Corvis had transformed itself from a telecom equipment maker to a telecom service company, jumping from one unprofitable, crowded industry into another.
Meanwhile, with its share price falling below a dollar, Corvis was forced to announce what amounted to a 10-for-1 reverse stock split to avoid being delisted. And to help finance yet another purchase, Corvis issued $225 million in convertible debt that the company recently announced would be repaid in stock rather than cash, further diluting the value of outstanding shares.
Like a number of other telecom zombies that are still spending their boom-time cash, Corvis should have been sold or liquidated years ago with proceeds distributed to shareholders. Instead, a reclusive and controlling shareholder was allowed to use other people's money in a vain attempt to prove he was right all along.
Acquiescing in this continued bad judgment has been a pliant board of directors that includes former NASD president Joseph Hardiman and David Oros, the chief executive of Aether Systems, another telecom bust-up that turned itself into a purveyor of mortgage-backed securities rather than go out of business.
Despite a projected loss of $150 million for 2004 on $650 million in revenue, and a share price that fell from $30 in January to $7.84 yesterday, this board is apparently so taken with Huber's strategic brilliance that this week it announced it was awarding him a 32 percent raise of $100,000 for next year, and a $17,500 bonus.
None of the directors would return phone calls yesterday to explain their decision. Huber also declined repeated requests for interviews. A spokeswoman said he's simply too busy turning the company around.
Steven Pearlstein can be reached at firstname.lastname@example.org.