Sales of telecommunications equipment at Corvis Corp. dropped by more than half during its fourth quarter, but layoffs and other cost cutting helped the firm diminish its losses by 49 percent, to $190 million (47 cents per share).
Wall Street, hardened to the news that telecommunications carriers are too pinched for money to buy network upgrade devices like those that Columbia-based Corvis sells, were unconcerned by the drop in sales.
"They're doing the best they can," said Rick Schafer, an analyst with CIBC World Markets, an investment firm that represented Corvis in its public offering and its acquisition of Dorsal Networks. "My concern was, is, and remains, their cash burn," because the company keeps using up its cash reserves, he said.
During the quarter, Corvis spent $4.4 million in cash to repurchase 5.9 million of its shares. Its operating expenses for the year were $200 million, up $31 million.
Corvis executives say they have enough cash -- it reported $504.4 million at the end of 2002, down from $660.8 million during the same quarter a year earlier -- to survive for five years. But exemplifying the problem with revenue, some of the $7.1 million that came in during the fourth quarter came from Qwest Communications International Ltd., which last year had promised to buy $150 million worth of goods from Corvis, but cut back its purchase to $12 million.
Corvis sells a cutting-edge technology that takes Internet data, converts it to a pulsing light signal and carries it on a glass tube for as long as 2,000 miles at a stretch. Fiber optics, as that light-signal technology is known, helps carry information efficiently from one part of the globe to another. But it is also expensive and Qwest, Broadwing Communications Inc., and other long-distance Corvis customers who once threw money at the new technology are now pulling back on spending.
That has forced Corvis and others in the industry to retrench. Last week, Corvis laid off 180 people in its eighth round of cutbacks. It already had dismissed most of its sales force and slashed more than half of its research unit. Its engineers borrow each other's test equipment to save money. It's small enough now -- it will have fewer than 500 employees by the spring -- that internal meetings sometimes take place in hallways or over cubicle walls.
At one time, Corvis was a model of wealth and explosive growth. It ballooned to more than 1,600 employees and raised $1.1 billion in a public offering within three years of its founding. Now, all attention is back on saving money and concentrating on the lab, where its goal is simple: Successfully test its product with five of its customers and try to get them to commit to buying Corvis's products in the future, if not within this year.
"We have to cut costs, save cash and stay engaged with customers," James M. Bannantine, president of Corvis, said in a recent interview. "We haven't seen signs of a turnaround; we said it couldn't get any worse, and it got worse." Even with the massive cutbacks of the past year and a half, "there's still room" for additional cuts, Bannantine said. "I see room everywhere."
"Corvis, if it should manage to win a couple of large carriers, would be going well. The expectations are fairly low; we expect sales to be just short of $30 million" in 2003, which is far less than the $188.5 million in sold in 2001, said Simon Leopold, an analyst with Merrill Lynch & Co. Until the market comes back, Corvis has no choice but to cut back and wait for a market recovery, he said. "It's not in a financial position to develop a new suite of products."
David Huber, the physicist who co-founded neighboring rival Ciena Corp., then sold off his stake and left to start Corvis in 1997, reflected on doing business in this difficult market.
"Certainly, I expect it to be a dynamic year," Huber said dryly in a recent interview. Then he said with a chuckle, "If it were two years ago, my advice to myself would be: Sell. Sell everything; sell your stock, sell your company."
Although some analysts consider a merger or liquidation a desirable route for Corvis, Huber, who owns 24 percent of the company and is its chairman, said selling the company is not under immediate consideration.
Huber said he would consider a sale, but believes it would be more lucrative for the company to wait until carriers start spending again. He believes they will turn to Corvis because of a simple economic calculation: It takes eight boxes made by a Corvis competitor to carry the same amount of traffic as Corvis can carry on one of its boxes.
Huber faces another challenge next week, from his old company. A trial begins Feb. 10 on a lawsuit Ciena filed in July 2000 charging Corvis copied technologies used for at least five products that transport and receive optical signals, as well a software program. Corvis filed a counterclaim in September 2000 calling Ciena's claims invalid and unenforceable and vowed to "defend ourselves vigorously."