Smith Plans Layoffs at Its Headquarters : Oil Rig Maker Will Extend Cost-Cutting to Newport Offices
As part of a continuing effort to cut costs and streamline operations, Smith International Inc. will announce a new round of layoffs Thursday, with the cutbacks this time coming at the oil services company’s Newport Beach headquarters.
Company official Tuesday confirmed reports from several employees who had been told of the planned cuts, which follow the Feb. 8 layoffs of 700 workers from the Smith Tool division in Irvine. Smith employees number about 8,300 worldwide.
“We don’t have any numbers yet,” said Smith Vice President Paul Russell in a telephone interview late Tuesday. He said the decision to “streamline Smith’s administrative operations” is part of a company-wide cost-cutting and restructuring program that began months ago. Russell said employees who lose their jobs will be “given all possible assistance, consistent with Smith’s past practices.”
Company and industry sources said that Smith, in a further cost-cutting measure, may also move from its plush Newport Beach offices to more modest headquarters at Smith Tool.
Fierce Competition
Russell would not comment on the possibility of such a move.
Smith, which makes oil drilling equipment, has watched its earnings suffer from a three-year slump in the oil services industry. It is also heavily in debt from battling almost a year for control of Gearhart Industries Inc., a Fort Worth high-technology oil services company. Settlement negotiations between the companies are continuing.
In the past three years, as the price of crude oil declined and the number of drilling rigs has plummeted, Smith and similar companies have engaged in cutthroat price competition for the remaining business. Price discounting is rampant, and production of new drilling equipment has been dramatically reduced.
Industry analysts said the recent round of layoffs came as no surprise.
“They have cut as far as they can at the hourly levels,” said Herb Hart, a San Francisco securities analyst who has tracked Smith for years. “They are definitely in deep soup.”
Two weeks ago, at a meeting of securities analysts who track the oil services industry, Smith Chairman Jerry Neely said, “We have already implemented a hiring freeze, eliminated overtime and reduced our work force.” He said that management has a list of “trigger points”--for example, a sudden drop in oil prices or a decline in sales--that prompt immediate action.
Analysts’ Dinner Canceled
Neely said Smith has to be more flexible and operate with a “flatter, thinner” management structure. In a dramatic demonstration of the new austerity, Neely canceled Smith’s customary free dinner for analysts.
Oil industry analysts said Tuesday that the company’s troubles have rekindled talk in the industry of a takeover of Smith. But Russell said, “Rumors such as those are commonplace, have recurred for years and are standard Wall Street fodder in a slow market.”
Hart, the analyst, said, “Whoever buys Smith has got to have a lot of courage. They are not a very prime takeover candidate.”
Hart and other analysts said that any buyer would face serious uncertainties and expenses related to Smith’s battle with Gearhart and a lengthy, unresolved patent-infringement lawsuit filed against Smith by Hughes Tool Co. The damage portion of that suit is scheduled to go to trial this summer.
Smith’s stock closed Tuesday at $12.625 a share, up 50 cents, on the New York Stock Exchange.
