Hatteras, Orckit Downsize

A Pre-emptive Strike in Tough Economic Times

Smaller telecom vendors can expect customers to attach themselves to larger, more stable suppliers as the global economy slips deeper into recession territory. That trend could endanger the futures of small-to-mid-size companies that boast respected service and brand names, but lack the client base and financial heft of their more established counterparts. However, if those smaller firms make the right business decisions — read, layoffs — at the right time, they stand a better chance of emerging intact from dark fiscal times. That’s the word from analysts as two mid-size Carrier Ethernet vendors preemptively cut jobs in November.

Israel-based Orckit Communications (ORCT) was the first to shed workers. It said briefly in a Nov. 12 earnings conference call that it had gotten rid of 90 jobs, or one-third of its work force. Two days later, Hatteras Networks, based in North Carolina, sliced 20 positions, which amounted to approximately 25 percent of its staff.

The hard times certainly aren't limited to small vendors -- larger ones are feeling the economic pinch as well. Sun Microsystems(JAVA) is slashing 6,000 jobs; Sony Ericsson and Ericsson(ERIC) both are cutting hundreds of positions, many in R&D; phone maker Nokia(NOK) has offed at least 600 jobs; and Motorola Inc.(MOT) is doing the same.

Tom Nolle, founder and president of technology consulting firm CIMI Corp., said while Carrier Ethernet promises lower total cost of ownership, economic turmoil is causing buyers to be extremely conservative in their vendor choices.

“Hatteras and others are realizing ... they are going to take a hit in 2009 and 2010,” losing business to larger suppliers, he explained.

Of course, that reality isn’t relegated to Carrier Ethernet.

“Smaller vendors are going to lose market share,” Nolle continued. “It’s going to be true in every single space in the market. It’s not a Carrier Ethernet problem, it’s a small vendor problem.”

Unfortunately, the problem appears to be spreading past the small vendors. Web content company Akamai Technologies on Nov. 18 said it had to eliminate 110 jobs, 7 percent of its employee totals.

It’s a given that Orckit and Hatteras would disagree with the assessment that they’re going to suffer.

Orckit didn’t respond to an interview request on the matter. In a third-quarter call with analysts, however, CEO Izhak Tamir emphasized the layoffs were not “because we see any slowdown in our business. It's the other way around.”

"This is a defensive state, just to make sure that if worse comes to worse, we are still protected," Tamir added.

Hatteras gave similar reasoning. In fact, Hatteras contacted media just after the downsizing “to address any rumors or speculation and correct any possible misperceptions,” according to the e-mail. In an interview with xchange, Hatteras CEO Kevin Sheehan said his company is not changing how it operates and it’s not doing less development. Rather, he explained, “we’ve been through an economic downturn before that lasted longer than anyone thought. I hope we’re wrong this time and that it’s just a blip ... but a lot of the indicators show it’ll be a pretty long economic slump.”

To that end, Hatteras purged jobs throughout the company, not in one particular division, he said.

“Some of the rumors that are out there with regard to how we cut back are ridiculous and unfounded,” said Sheehan.

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