Price cuts, shuttered operations, layoffs, salary reductions. As the dramatic sales slide continues, these are the newest tools in the management arsenal along the 101 Technology Corridor in the San Fernando Valley.
Many companies, particularly in the telecommunications sector, face sales declines of 50 percent or more compared with last year and, with no end to the downward spiral in sight, managers are scrambling to bring costs in line with the new revenue levels. The Sept. 11 terrorist attack will certainly not help.
Cost-cutting is standard operating procedure, but what’s different about these cutbacks is they are coming amid a wholesale rethinking of basic business models.
For some, that means spending a nickel to save a dime. For others, it means abandoning marginal businesses or those the company can’t excel at in order to put limited resources where they will do the most good.
“We are tightening our focus,” said Gwen Carlson, a spokeswoman for Conexant Systems Inc., which employs 450 workers at its Newbury Park facility. “We have identified three areas we are channeling our resources to.”
Consider these developments:
– Conexant discontinued its CMOS manufacturing process in favor of more specialized semiconductor manufacturing technology. The company also divested a manufacturing division that did not target the areas where it is placing its focus: mobile communications, Internet infrastructure and broadband access.
– Chatsworth-based semiconductor company Luminent Inc. beefed up its sales resources while moving much of its manufacturing offshore.
– NetZero Inc., founded on the idea of free Internet service, overhauled its business model, switching its focus to a subscriber-paid service from an advertiser-supported one.
– Accelerated Networks Inc. is focusing on its core products, no longer designing customized features clients request without a signed purchase order in hand.
To be sure, layoffs have also played a major role in most cost-cutting. NetZero eliminated 26 percent of its workforce. Luminent laid off 600 workers in the second quarter. Conexant slashed its workforce by 450. But staff reductions can be a double-edged sword for tech companies.
Salaries too high
On the one hand, executive say at least privately, many workers were hired on at exorbitant salaries because of technical expertise that, it turns out, is not as important as business seasoning. At the same time, many of these firms live and die by their ability to provide the next new thing. Cutting back on that brain trust can lead to larger problems down the road.
“The quickest and easiest way for a company to improve the bottom line is layoffs,” said Ed Pollock, a spokesman for Luminent. “But that’s probably the least desirable way. You may be able to trim some fat, but you almost always tend to cut into some muscle as well.”
One way to keep the talent they are certain they’ll need when the economy turns around is to curtail compensation spending.
“You’re going to see, for the rest of this year, raises and cash compensation slowing down,” said Robert J. Pearlman, technology practice leader for Grant Thornton, an accounting and consulting firm.
