Fueled by a 31 percent drop in sales, Scientific-Atlanta Inc. announced
Thursday that it will cut 750 jobs and consolidate its manufacturing operations
in Mexico as the cable-equipment manufacturer reported one of its weakest
quarters in recent memory.
Still, company executives pointed to two digital set-top-box deals and the
fact that the company is still turning a profit as signs that its market
strength has not disappeared. That was enough to boost the company's stock price
The Atlanta-based gear maker's first quarter ending Sept. 28 saw sales total
$410.1 million, a $187.1 million drop compared with the same period in 2000.
Even with a $49.5 million one-time, after-tax boost from the sale of part of
its investments, earnings for the quarter fell $76.2 million, a 67 percent drop
compared with 2000. Earnings totaled $37.1 million at 23 cents per share, down
S-A also saw a drop in digital-box shipments, logging 855,000 units in the
quarter versus 1.25 million shipped in the previous quarter. Sales of
transmission products also dropped 41 percent to $110 million.
The largest declines for the quarter were in bookings, which plummeted 74
percent to $172.1 million compared with the $674.7 million logged in
The company joined a host of vendors in blaming the Sept. 11 attack on
America for the downturn -- in S-A's case, it evaporated expected late-quarter
'Our quarters are often very back-end-loaded,' chairman, president and CEO
Jim McDonald said. 'However, we did not see the normal quarter-end level of
business in any of our businesses in the weeks following Sept. 11.'
Given the downturn, the company will restructure its worldwide operations,
cutting some 750 employees -- 500 from manufacturing units and 250 from
engineering, marketing, sales, service and administration.
S-A will also transfer most of its Atlanta manufacturing operations to its
Juarez, Mexico, plant.
Both actions will cut an estimated $61 million annually from S-A's budget
starting in the third quarter of 2002.
Despite the largely dismal returns, S-A did beat estimates for the quarter,
and it remains in the black, with $591 million in cash and short-term
investments and no outstanding debt.
While the company again declined to provide predictions for coming quarters,
McDonald did offer views on the marketplace. He said the critical decline in
digital-cable subscribers seen among some MSOs could be blamed on the harsher
economic climate or customer churn.
'Regardless of where the problem lies with new digital-subscriber growth
rate, digital churn or a combination of the two, it is clear that our industry
must enhance the value proposition of digital cable,' McDonald said.
'The additional value proposition was based on more channels, pay-per-view,
better picture quality and digital music,' he added. 'Our strategy now as before
is to focus on the ability of interactive applications to differentiate the
digital-cable offering from both satellite and advanced-analog cable and to
increase its value to the consumers.'
S-A is also encouraged by the growing pace of MSO interactive-TV rollouts.
'We are encouraged that the MSOs have invested in infrastructure to deploy
video-on-demand and subscription video-on-demand,' McDonald said.
As proof, he pointed to the fact that S-A shipped a record number of
multi-QAM (quadrature amplitude modulation) modulators used to connect video
servers to cable networks in the first quarter. S-A also added nine new system
launches for on-demand services, bringing its total to 25 systems.
Another bright note for S-A was two recent announcements.
The first was that the company has struck a deal with America Online Inc. to
deploy 'AOLTV' on the S-A 'Explorer 2000' series of set-tops. That includes AOL
electronic-mail, chat and instant-messaging functions.
S-A also announced that Time Warner Cable has committed to buying 100,000 of
its top-end 'Explorer 8000' home media servers armed with
personal-video-recording functions and advanced interactive capabilities. Time
Warner will also purchase 50,000 'Explorer 3100HD' set-tops geared for
In all, Time Warner is now committed to buying 625,000 digital boxes from