Scientific-Atlanta Inc. plans several restructuring moves that will cost $60 million to
$75 million in the current quarter and eliminate 275 jobs as part of efforts to make the
company more cost-competitive.
Fortunately for the set-top vendor, S-A also owns 1.5 million shares of hot chip-maker
Broadcom Inc., which went public in May, and which has seen its share price shoot up to
last week's $68 close. So S-A will record a $100 million one-time gain in the
current, fiscal fourth quarter, more than offsetting the restructuring charges.
S-A said the restructuring moves won't have a negative impact on the quarterly
results of ongoing operations. An S-A spokesman said the company probably won't give
projections of ongoing cost savings until its quarterly results are released in early
S-A CEO James McDonald, in a prepared statement, said the moves were "necessary to
improve our competitive position."
McDonald noted that the company is building a new, $40 million facility in suburban
Atlanta that will combine operations that are currently scattered in 18 locations.
"We are very sensitive to the impact that these actions will have on some of our
employees, and we will work to make the transition as smooth as possible for them,"
S-A and other cable-technology vendors' stocks have risen since news of AT&T
Corp.'s merger with Tele-Communications Inc. broke. On June 26, when the S-A
restructuring release came out, the company's share price dropped by 44 cents, to
$24.81. By midday Wednesday, S-A shares were back up to $26.62.
The restructuring moves include:
Shifting the company's RF (radio-frequency) amplifier product line from
Atlanta to Juarez, Mexico, by October. All of S-A's major competitors have made
similar moves to low-cost manufacturing areas.
Consolidating the Vancouver, British Columbia, cable-headend-production line
into Atlanta, partly to more effectively manage the transition from analog- to
Shifting the Melbourne, Fla., satellite-services network-operations center and
research facility to Atlanta.
Moving the European headquarters to Frankfurt, Germany, from London; and the Far
East regional headquarters to Singapore from Hong Kong.
Combining the satellite-networks and communications and tracking-systems
S-A opened its Juarez production line three years ago to handle high-volume, low-cost
production, while the Atlanta operations will focus on lower-volume work that requires
close engineering support, the company said.
Nikos Theodosopoulos, a technology-stock analyst and managing director at Warburg
Dillon Read, said the restructuring was "indicative of some of their weakness in Asia
and in the satellite business." Moving the European operations to Germany recognizes
the fact that "that's where most of the opportunities are" in the
continental portion of Europe.
The moves will eliminate 275 jobs in the Atlanta area -- mostly manufacturing jobs from
the RF-production line. S-A also plans to shift 150 jobs to Atlanta from elsewhere,
reducing the total Atlanta cutbacks to about 125 jobs. Restructuring charges involve
severance and writing down certain assets, such as excess inventory related to the
S-A is not alone in its plan to reshuffle for financial buoyancy. This past October,
S-A's bitter rival in the cable-hardware realm, General Instrument Corp., made
similar moves to reorganize its manufacturing operations and corporate structure.
But that was before TCI, GI's largest customer, initiated what many cable
executives viewed as a "GI bailout" by masterminding a multiple-MSO order for
more than 15 million of GI's advanced-digital set-top line, the DCT-5000.
S-A countered that move with repeated word earlier this year of its multiple-MSO
orders, mostly coming from Time Warner Cable. S-A's senior executives said their
high-end advanced-digital line, Explorer, is shipping -- despite seemingly contradictory
word from Time Warner that it plans to step up its digital-video-deployment efforts this
MSO takers for S-A's Explorer line include Adelphia Communications Corp., Cogeco
Cable Inc., Cox Communications Inc., Marcus Cable Co. L.P., MediaOne, Rogers Cablesystems,
Time Warner and Le Groupe Videotron Ltee., among others.
S-A declined to discuss order specifics, saying only that the combined order load for
its Explorer 2000 digital two-way set-top now sits at 850,000 units. That number includes
the 550,000 boxes previously ordered by Time Warner and a still-unspecified order from
After subtracting Time Warner's previously announced order, the seven operators --
none of which would publicly discuss their specific S-A order levels -- will divvy up a
remainder of 300,000 set-tops.