Vitesse Hoping for a Rebound -- Again
It’s start-up time again at Vitesse Semiconductor Corp., the 15-year-old chip maker in Camarillo.
Just a few years ago, the company was riding on the coattails of the booming telecommunications industry. Its long-distance chips accounted for 75% of its revenue, the company was doubling in size each year, and its stock soared above $100 in early 2000.
Then oversupply of telecom capacity produced one of the biggest meltdowns the technology sector has ever seen. One of the victims was Vitesse.
So founder and Chief Executive Lou Tomasetta embarked on a familiar path, refocusing his company on new opportunities.
“The nature of our business is that anything you did three years ago is obsolete,” said Tomasetta, who holds four degrees, including a doctorate in electrical engineering from the Massachusetts Institute of Technology. “You have to reinvent yourself every few years.”
This time, Tomasetta is reinventing Vitesse as a maker of chips used for data storage, local area networks and other applications that are showing signs of growth. Those chips now account for the bulk of Vitesse’s sales, with revenue from those areas growing 10% every quarter, Tomasetta said. Meanwhile, telecom chips now account for just 15% of the company’s revenue.
The turnaround effort seems to be well-timed. A recent report by the Semiconductor Industry Assn. found that the chip sector appears to be making a modest recovery, after the worst downturn in the industry’s history.
Tomasetta concurred: “I think we’ve passed the bottom already.”
That would be good news for Vitesse investors. The company’s stock now is trading for just a few dollars, closing down 3 cents Thursday to $2.64 on Nasdaq.
For its fiscal fourth quarter ended Sept. 30, Vitesse had an operating loss of 9 cents a share as its revenue declined 11% to $38.1 million. The company reported net income of $3.7 million, or 2 cents, contrasted with a net loss of $59.2 million, or 30 cents, a year ago. The results included $8 million in charges and a $30-million gain related to the company’s buyback of $190.1 million in subordinated convertible debt for $140.4 million.
For the full 2002 fiscal year, Vitesse had a net loss of $883.5 million, or $4.45 a share, including gains and charges. Revenue plunged 58% to $162.4 million.
Tomasetta has told Wall Street that Vitesse will do whatever it takes to get back to profitability by the end of the current fiscal year. His management team has been working to control costs in the wake of six consecutive quarters of declining overall revenue.
Nearly 400 jobs have been cut in the last 18 months, leaving the company with about 900 employees. An additional 50 job cuts are expected. Executive salaries also have been trimmed 10% to 25%.
In October, Vitesse detailed an aggressive debt repurchase it conducted during the fourth quarter that analysts considered a savvy move to tune up its balance sheet.
Some analysts have expressed hope for the current restructuring. They say Vitesse has recovered from much graver circumstances than the current downturn.
“They’ll get to profitability,” said Arnab Chandra, an analyst with Lehman Bros., which owns no stock in the company. “They’ve navigated the company out of deep doldrums in the past.”
The company started out making powerful chips for supercomputers. When the market for supercomputers evaporated in the mid-1990s, Vitesse turned its attention to chips it was developing for the telecommunications industry, which was beginning its spectacular rise following deregulation.
And Vitesse steered a dazzling turnaround -- until the telecom sector cratered.
Jeremy Donovan, chief analyst at Gartner Dataquest, said Vitesse is wisely managing its current diversification.
“They really beat other companies to the punch on storage,” said Donovan, who does not own stock in the company.
But Wall Street is expecting more tough work ahead. Several analysts have lowered their forecasts for the current quarter.
For their part, Tomasetta and other senior executives demonstrated their confidence in the company by buying Vitesse shares as the stock slid toward the $1 mark in August.
During August and September, Tomasetta bought 200,000 shares, and an additional 350,000 were purchased by senior executives Yatin Mody, Ira Deyhimy and Richard Riker, and director James A. Cole. All of them bought their shares for between $1.18 and $1.74 each, according to regulatory filings.
Tomasetta isn’t shy about telling analysts when he thinks they’re wrong about his firm. Even when it was soaring, he said, they missed what was really happening.
“When we were growing at 100% a year, most of them were forecasting that it was going to keep going on forever,” Tomasetta said. “They didn’t see the top, and I don’t think any of them see the bottom.”