Newport plans 225-275 layoffs as part of cost cuts, reorganization
Irvine, CA— Newport Corp. announced Aug. 20 a cost reduction and reorganization plan—including layoffs of 225 to 275 employees—that is expected to save the firm $12-14 million per year, and help it achieve profitability during the present period of weak demand. The company adds its cuts and reorganization are needed due to the protracted downturn in the fiber-optic communications market and uncertainty in the pace of recovery in the semiconductor equipment market.
In total, Newport states its cost-cutting measures and reorganization are expected to result in one-time charges of $30-40 million in 3Q02. About $4-7 million will involve cash outlays, while the remaining charges will include revaluation of inventories and a write-down for impairment of long-lived assets resulting from facility consolidations.
'The fiber-optic industry remains fundamentally weak due to very low levels of capital spending for network expansion and excess capacity for production of fiber-optic components and systems. This leads to reduced capital spending by component manufacturers and lower demand for the capital equipment we sell into this market,' says Robert Deuster, Newport's president and ceo. 'While we still believe strongly in the long-term prospects in this industry, we currently do not see a return to growth for us in this market until at least 2004. Due to the ongoing downturn, FPD is currently running at a substantial loss, which has had a significant negative impact on Newport's overall operating results in recent quarters. Due to the protracted nature of this downturn in the fiber optic industry, and the increasingly uncertain timing of a recovery, we must take action to reduce our cost structure while maintaining our leadership position.
'Although orders from our semiconductor capital equipment customers have remained strong throughout the last six months, we're increasingly concerned about uncertainty in the marketplace related to the timing of the recovery cycle. As such, we are also taking actions to streamline our semiconductor-related operations to maximize their profitability despite the potential slow-down and to position this business for even greater profitability once the semiconductor equipment industry recovers more fully.'
Newport's reorganization will affect its two operating divisions. Effective immediately, its Fiber-Optics and Photonics Division (FPD) is being reorganized into the Advanced Packaging and Automation Systems (APAS) division. Its focus has been expanded to cover all automation equipment technology developed and sold into all end-markets. The primary focus of FPD in recent years has been on automation for assembly of fiber-optic components. The expanded charter of APAS now includes advanced semiconductor packaging equipment and automated systems for handling semiconductor wafers, in addition to automated systems for assembly of fiber-optic components.
Kevin Crofton, FPD's vp and gm, will continue in the same capacity with APAS. Included in APAS and under Mr. Crofton's direction will be Newport's Kensington Laboratories unit in Richmond, California; its advanced packaging operation (MRSI) in Billerica, Massachusetts; its Chandler, Arizona-based automation and integration facility, and its streamlined fiber-optic operation, also in southern California.
Newport's Industrial and Scientific Technologies Division (ISTD) will continue to be led by Bob Phillippy in the U.S. and Alain Danielo in Europe. They will focus on product and market initiatives involving instruments and subsystems for optical, opto-mechanical, vibration isolation and motion control technologies, which are also sold into the strategic end-markets that Newport serves.
Workforce, facilities reductions
Concurrent with its reorganization, Newport plans to consolidate its facilities and reduce its workforce by 225 to 275 employees to achieve its expected annual savings of $12-14 million. Most of the layoffs will occur in 3Q02 and will likely be completed by the end of the year. Newport's total worldwide headcount following these actions will be between 1,125 and 1,175, more than 40% below its peak of approximately 2,000 employees in June 2001. Severance costs are expected to be $2-4 million. Newport expects to realize some resulting savings in 4Q02 and to capture the full projected annual savings in 2003. The firm's workforce reductions involve the following actions:
About 105 to 145 of the layoffs will come from combining Newport's automation businesses into the new APAS division and reducing the scope of the company's investment in the fiber-optic communications market. Plans include downsizing operations at the former FPD division headquarters in southern California and its facility in San Luis Obispo, California, as well as consolidating its former Design Technology facility in Billerica, Massachusetts, into the MRSI facility, also in Billerica. Consolidation of the Garden Grove, California facility into the Irvine, California, location has already occurred.
Newport will divest its facility in Plymouth, Minnesota, which manufactures high-precision motion stages for the semiconductor equipment, computer peripheral, fiber-optic communications and life and health sciences markets. The company believes this sale will be substantially completed by Dec. 31, 2002. This business will be treated as discontinued, and its operating results will be excluded from continuing operations. An expected sales price has not yet been determined. This action will reduce Newport's headcount by approximately 60 positions. For the first six months of 2002, the Plymouth facility generated revenues of approximately $2.0 million and an operating loss of $0.2 million. This operation represented approximately $9.0 million in assets on Newport s balance sheet as of June 30, 2002.
Because of uncertainty in Newport's other end-markets, the company also intends to reduce its personnel by an additional 60 to 70 positions to further streamline its operations.
'We regret the need for additional personnel reductions and the impact they have on our employees, but we are determined to serve our customers in a more efficient manner and provide a greater return to our shareholders, despite these very difficult market conditions. I would like to acknowledge the important contributions made by every Newport team member during this time,' says Mr. Duester.
Increase inventory reserves
Newport expects to increase its inventory reserves by $24-30 million due to two factors. First, in response to the protracted downturn in the fiber-optic communications market, Newport decided to rationalize certain legacy products and discontinue a number of product development initiatives, which will cause an increase in the amount of reserves required for obsolete inventory. Second, a number of Newport's large customers have announced plans in recent weeks to reduce or eliminate their focus on manufacturing optical components, and many others have indicated that they expect to further reduce or eliminate capital spending on automation products in the near term. As a result, the amount of anticipated future sales that Newport expects of products currently in inventory has been reduced, resulting in the necessity to increase reserves for its slow-moving inventory.
'We believe the actions we're taking will drive considerable improvement in our financial performance as early as 4Q02 and certainly for fiscal year 2003. However, we're concerned with the recent cautiousness reflected in comments made by our semiconductor customers. Because of potentially lower sales to semiconductor customers and the removal of sales from our Minnesota facility, we believe that our sales from continuing operations for 3Q02 may fall slightly below the $48.0 million we forecasted as the low end of the range in guidance provided in July 2002,' says Mr. Duester. 'However, we're confident that we'll show increased sales sequentially, compared to the $44.0 million recorded in 2Q02. In addition, the pretax charge of $30-40 million will push us into a loss position for 3Q02, as opposed to the prior expectation of somewhere between breakeven and a two-cent gain.'
Control Engineering Daily News Desk
Jim Montague, news editor